Who is entitled to the tips and what does the law classify tips to be The status of tips under the law is far more complex than it should be. We all have an understanding what tips are. We provide tips to our servers regularly. Most consumers believe that the tips we provide to the worker remain with that worker. However, this is often not the case.
From a federal perspective, tips are property of the employee to which the tip is provided. Oddly enough, federal wage law allows employers to reduce wages which would otherwise be due as minimum wage under the FLSA. That means that the employer need not pay all minimum wages under the FLSA minimum wage laws because the employee receives tips. Despite the fact that the tips are the sole property of the employee, federal law also allows management to force employees to be in tip pools. How it can be the sole property of the employee and still be subject to the mandatory control of the employer, your guess is as good as anyone else’s. The tip pools are also limiting on the employer. Only regularly tipped employees can participate in the tip pools. However, in a fairly recent case, the Ninth Circuit Court of Appeals held that so long as a tip credit was not being taken, the rules regarding who can share in a tip pool are not covered. This is especially important in states like Oregon which forbid tip credits.
Side effect of Oregon’s failure to allow employers a tip credit against minimum wage
Oregon law is different than federal law in that it does not allow a tip credit. Because an employer cannot escape liability for minimum wages in Oregon by taking a tip credit, and because the federal case states that the tip pool requirements do not control where no tip credit is taken, Oregon’s law gets more confusing.
No case in Oregon has ruled on whether a tip is classified as a wage for purposes of wage and hour laws. However, some tax and employment department statutes consider a tip a wage for purposes of those laws. For instance, there are rules regarding payment of tips and taxing tips on the paycheck stubs. Apparently, the government is less concerned with whether the employee actually receives their tips than they are in ensuring that the taxes due on the tips are paid by someone. (unemployment taxes and income taxes).
The effect that this confusion has had to employees
Employers have begun to use tips, not only to offset minimum wages, but to simply add to their bottom line. I have seen multiple cases where 100% of the tip goes to the owner of the restaurant. Or where the credit card tips never get paid to the employee. I have also seen situations that there is no accounting for the tips such that the employee cannot tell what they were due in tips and thus have no way to ascertain whether they have received all their tips. The creativity of the ways the employer are stealing tips from employees varies by employer. As a consumer I am appalled, if tips are to be used to pay the restaurant, the server should so state so that the customer knows what they are actually being charged. I personally would not tip if it was known to me that the tip was going to the restaurant and not the server.
As an employee, what can you do if management steals your tips
Just as the business owners are finding unique ways to steal tips, the employee must find ways to get them back. As examples, the employee could file a wage claim asserting that tips were wages. While this is against federal law, it provides many options if won in state laws. The employee could recover penalty wages. The employee could also assert the deductions of tips were unlawful and thus entitled to damages. In the right case, where the employer fails to comply with other wage laws, the tip could be combined with that claim reducing risk of the litigation. Alternatively, the employee could file claims for conversion (theft of tips). Under the right circumstances, an employee may be able to file the tip conversion case such that their attorney fees would be paid.