Ninth Circuit Decision Clarifies Tip Pooling Rules Under Federal Law: A Cautionary Tale

By Christopher S. Andre and Scott K. Dauscher

On February 23, 2010, in Cumbie v. Woody Woo, Inc., the Ninth Circuit Court of Appeal held that an employer that pays its wait staff a wage greater than the minimum wages does not violate the Fair Labor Standards Act ("FLSA") by requiring its wait staff to participate in a tip pool that redistributes approximately 55% to 70% of their tips to employees who are not customarily tipped, such as dishwashers and cooks.

The Ninth Circuit agreed with the trial court there was no violation of the FLSA because the FLSA does not restrict which employees may share in a tip pool so long as the employer does not apply a portion of an employee's tips toward payment of the Federal minimum wage, and Woody Woo paid its wait staff wages greater than the Federal minimum wage. On the other hand, when an employer does take such a "tip credit," tips can be distributed only to employees "who customarily and regularly receive tips."

We refer to the decision as a cautionary tale because California employers are subject to both Federal law and California law, which frequently overlap. When Federal law and California law overlap, an employer is generally required to comply with the law that is most favorable to the employee. An employment practice lawful under Federal law might violate California law and vice versa. For example, while the FLSA permits an employer in some circumstances to apply a portion of an employee's tips toward payment of the Federal minimum wage, California Labor Code Section 351 forbids that practice entirely.

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Click here to download and read the Fair Labor Standards Act

Click here to download and read California Labor Code Section 351.