In a case that appears to one of first impression at the federal appellate level, the Ninth Circuit ruled in Cumbie v. Woody Woo, Inc. that there are no tip-pooling claims under the Fair Labor Standards Act (FLSA) for restaurant employees who are paid more than the minimum wage before tips. FLSA, the federal wage and hour law, regulates how tips can be distributed or shared as part of its regulation of the minimum wage. As restaurants commonly do, servers can be paid a small base amount and make the rest of their wages in tips. Properly arranged, the tips paid to the servers are a “tip credit” for the employers that combines with the base pay to meet the minimum wage. An employer can use a “tip pool” as part of its tipping system if it meets two requirements: (1) the employee is fully informed; and (2) the tip pool includes only “other customarily tipped employees.” Disputes often involve this second requirement — e.g., if tips are shared with managers (who are not customarily tipped).
Reading the FLSA in this way, the Court held that because the servers in this case (who had brought a class and collective action case) were receiving a base pay that was already greater than the minimum wage, the employer was not taking advantage of the “tip credit,” and therefore did not have follow the tip-pooling regulations. Of course, if the servers’ base pay had been less than minimum wage, the outcome would be entirely different. (Also note that different analysis may apply under the North Carolina Wage and Hour Act.)