DOL Regulation Prohibiting Employer Retention of Tips Is Invalid – And Will Be Rescinded


The U.S. Court of Appeals for the 10th Circuit found invalid the Department of Labor’s regulation that prohibits employers from retaining tips regardless of whether they utilize the tip credit towards the minimum wage requirement. Moreover, the DOL proposes to rescind the regulation.

Background. Under the Fair Labor Standards Act, an employer may take a tip credit toward its minimum wage obligation for tipped employees equal to the difference between the required cash wage (which must be at least $2.13) and the federal minimum wage ($7.25/hour). Tipped employees are defined as those who customarily and regularly receive more than $30 per month in tips. The FLSA does not address who owns the tips; however, the DOL issued regulations in 2011 providing that tips are the property of the employee and may not be used by the employer for any purpose other than the tip credit.

In Marlow v. The New Food Guy, Inc., a caterer paid its employees well in excess of the minimum wage and retained customer gratuities. A server sued, arguing that the tips should not have been retained by the caterer.

The Court’s Decision. The 10th Circuit, however, found that the DOL lacked the authority to implement this regulation. In so holding, the 10th Circuit explicitly disagreed with the 9th Circuit, which upheld the regulation in Oregon Restaurant & Lodging Ass’n v. Perez, a case that is being appealed to the Supreme Court.

The DOL Intends to Rescind the Regulation. On July 20, 2017, the Trump administration released its Unified Agenda of Regulatory and Deregulatory Actions, and announced that it intends to issue a proposed rule in the next month to rescind this tip credit regulation. This is part of the Trump administration’s stated plan to reverse anti-business regulations that had been imposed by the Obama administration.