Labor Dept. unveils rule rolling back Trump-era tip regulations

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REUTERS/Andrew Kelly

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  • Rule restores broad penalties for violating tipping rules
  • DOL also clarified that managers cannot participate in tip pools
  • Rule withdraws portions of Trump-era regulation backed by business groups

(Reuters) - The U.S. Department of Labor on Thursday finalized a rule restoring the agency's ability to levy monetary penalties on employers who pocket workers' tips, even when the violations are not willful.

The rule published in the Federal Register withdraws a Trump-era regulation that permitted DOL to issue penalties of $1,100 per violation only when employers were found to have purposely or repeatedly not paid workers the full tips they earned.

DOL's Wage and Hour Division (WHD) said the Fair Labor Standards Act does not limit penalties in that way, and it was inappropriate for the agency to circumscribe its own powers in the Trump administration rule.

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The new rule also clarifies that, under the FLSA, managers and supervisors may contribute to tip pools but cannot receive a share of the tips paid to rank-and-file workers. Managers can only keep tips they receive directly from customers for services they solely provide, DOL said.

The rule takes effect in 60 days.

Jessica Looman, the acting administrator of WHD, said in a statement that the rule will advance equity in the workplace, noting that a majority of tipped workers are women, immigrants or people of color.

"Civil money penalties are an incentive for employers to comply with their legal responsibilities," Looman said. "When employers don’t comply, these penalties are a useful enforcement tool we can use to help achieve compliance."

The Labor Department in April pushed back the effective date of the 2020 rule to Dec. 31 while also proposing various changes.

The overhaul of the Trump administration rule was widely supported by Democrat-led states and left-leaning groups such as the Economic Policy Institute, which estimated that the rule would have deprived tipped workers of $700 million in wages.

But business groups said the 2020 rule made common-sense changes to tipping regulations that would benefit both employers and workers. The U.S. Chamber of Commerce in comments submitted to DOL last month said the agency had never adequately explained why it was scrapping the rule.

The Chamber also said the new rule would be unworkable for employers, particularly those attempting to recover from the economic fallout of the COVID-19 pandemic.

The group urged DOL to refrain from issuing a final rule until the pandemic has passed and the restaurant and hospitality industries are more stable.

Read more:

DOL proposes tweaks to Trump-era rule on paying tipped workers

DOL issues final rule EPI says will wipe out $700 million in wages for tipped workers

Trump-era rule on tipped worker pay pushed back to Dec. 31

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Dan Wiessner (@danwiessner) reports on labor and employment and immigration law, including litigation and policy making. He can be reached at daniel.wiessner@thomsonreuters.com.