CapitalCost Reduction

To Tip, or Not to Tip…The Danger of Legalizing Wage Theft””

Throughout our tipping series, we’ve discussed how no-tipping policies are looking to solve the problems of wage and socioeconomic inequality in the restaurant business. But as the Department of Labor (DOL) recently announced, “gratuity included” may not be the sole way to achieve this goal.

In early December, the DOL released a Notice of Proposed Rulemaking — a public notice that incurs the opinion of the people — under the Fair Labor Standards Act. For context, this act was originally passed in 1938 and has since established the minimum wage, prevented child labor, protected overtime pay, and regulated tipping. 

According to the DOL, litigation since 2011 has led the department to believe that pooling tips, and later distributing them between the front and back of the house, would significantly decrease income inequality. To accomplish this, they would deregulate many of the tipping statutes currently in place under the Fair Labor act. 

Despite the altruistic tone of the release, the DOL decision is shrouded in politics. The rules preventing tip-pooling were established by the Obama Administration in 2011, the year all the aforementioned litigation began. It is clear the Trump Administration hopes to roll-back as many Obama-era policies as possible, sometimes with little regard for the effectiveness of the policy. 

Politics aside, however, the question remains: Is this actually a good idea? In theory, the policy could get tipping money to the cooks, cleaners, and other restaurant employees without access to customer service. 

Many important parties support this idea, namely the National Restaurant Association, or “the other NRA.” In early 2017, they petitioned the Supreme Court to address the issue and reinstate tip-pooling, questioning if the DOL even has the authority to make such a decision. Many restaurateurs and operators have also come out in favor — Trump supporters or not — and see it as a way to avoid the tough “gratuity included” transition while spreading out income. 

Unfortunately, without some essential regulations, this will likely not be the case. The Obama administration eliminated tip-pooling so employees could keep their earnings instead of handing them to their employers. While some of these employers distributed the tips fairly, many simply chose to keep the extra income for themselves, or put it back into their business. 

This is the main concern for many labor advocates. While some states like California and New York have laws on the books that help regulate these actions (often described as “wage theft”), state-level legislation remains very inconsistent. 

Thus far, the DOL’s proposal does not include any federal safeguards either, and in fact has “wage theft” ingrained into its language. Heidi Shiernolz of the Economic Policy Institute noted how the proposal legally allows employers to keep tips as long as their employees are making minimum wage. 

The National Employment Law Project shared similar thoughts in a press release: 

“Tips belong to workers, period. All this proposal will do is make it harder for tipped workers to get by—yet another example of the Trump Administration’s elevation of corporate interests over those of working people.”

The opinion of this restaurant industry writer is that deregulation will only open the door for further labor exploitation, unless language is amended in the law to protect against wage theft. Fortunately for me, and any readers with an opinion on the issue, you can respond to the Notice of Proposed Rulemaking until January 4, 2018.


CapitalCost Reduction
  • Subscribe to our latest insights


Are you capital raise ready?