9th Circuit Upholds DOL’s Restrictions on Tip Pooling

On February 23, 2016, the Ninth Circuit Court of Appeals held in Oregon Restaurant and Lodging Association v. Perez (9th Cir., No. 13-35765 [Feb. 23, 2016]) that the U.S. Department of Labor (DOL) has the authority to regulate the tip pooling practices of all employers, not just those who take a tip credit. This is a considerable expansion of their authority.

In 2011, the DOL issued a rule that changed the requirements of tip pooling.  Prior to this rule, the DOL could only regulate the tip-pooling practices of employers who used a tip credit. The DOL did not have authority to impose these requirements on employers who pay their employees at least the federal minimum wage. The 2011 rule changed that. Now, all employers are subject to section 203(m) of the Fair Labor Standards Act (FLSA) regardless of whether the employer uses a tip credit or not.

Two cases were brought separately, one in Oregon and one in Nevada, challenging this rule. The district courts in both of these cases sided with the employers, holding that the new rule was not valid. The Ninth Circuit reversed both cases in a 2-1 decision, saying that the DOL had the authority to establish this rule. One judge issued a scathing opinion in dissent, saying that this ruling was contrary to precedent.

What are the requirements under the rule?

Any tip pool that includes employees who would not customarily receive tips is invalid. In a restaurant, servers and bartenders are customarily tipped, while the kitchen staff is not. A valid tip pool in a restaurant could not include kitchen staff. Therefore the employer cannot require the servers and bartenders share their tips with the kitchen staff. However, a tip pool comprised of only customarily tipped employees may still be valid.

When will this become effective?

A federal appellate court ruling is not effective until the court issues a mandate. The minimum timeline for a mandate is 21 days from when the court issues its opinion, so at the earliest this ruling will be effective on March 14, 2016. However, the deadline may be extended if the plaintiffs petition for a rehearing or if they petition the U.S. Supreme Court for a writ of certiorari.

According to the website for one of the plaintiffs, the National Restaurant Association, they are still considering their legal options. There is a good chance that at least one of the plaintiffs will either petition the Ninth Circuit for a rehearing or petition the Supreme Court of the United States. In the meantime, restaurants in states covered by the Ninth Circuit should be preparing to make changes to their tip pools on short notice. States covered by the Ninth Circuit are Alaska, Arizona, California, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington.

If you have questions about complying with these DOL regulations or the impact of this recent case, be sure to contact an attorney who is well versed in hospitality law.

Attorney Denise Gorrell has a unique background in hospitality law. She spent over a decade in the Seattle hospitality sector, which included time with wine retailer Esquin and the award winning restaurant Wild Ginger. Her experience gives her a deep understanding of the challenges faced by food and beverage entrepreneurs. She helps hospitality industry clients navigate complex, important issues such as business formation, real estate agreements, trademarks, OLCC rules and other governmental regulations.

Beneficiary Designations – Clearing Up The Confusion

In my experience, one of the most common areas of confusion in wealth and estate planning is beneficiary designations and their importance in many key areas.

Many important assets in an individual’s portfolio often pass at that person’s death by beneficiary designation and not by that person’s will or trust. Common examples of these types of assets include life insurance, retirement plans, individual retirement accounts (IRAs), and annuities. For many, these assets represent a significant portion of their overall assets, yet the beneficiary designations for these assets are sometimes not carefully considered.

 

Above all, it is very important to recognize that your will or revocable living trust does not control or “override” the beneficiary designations. For example, a parent’s will may direct assets to a trust for minor children if both parents are deceased. If the parent’s life insurance designation names the children directly, then the life insurance proceeds will “miss” the trust entirely, thus potentially requiring a conservatorship for the proceeds until the children reach age 18. While the children may legally be adults at age 18, they may not have sufficient maturity and experience to properly manage large sums of money (think expensive red sports cars here). The better approach would have been for the life insurance beneficiary designation to name the children’s trust as the beneficiary under the life insurance policy upon the death of the surviving parent. 

 

It’s also very important that you understand the tax consequences of your beneficiary designations. For example, if you designate your spouse as your beneficiary under your IRA, your spouse will be able to take advantage of a tax-free rollover of the IRA account into his or her own IRA. On the other hand, if a beneficiary other than a spouse is designated, then the beneficiary will have to take mandatory distributions from the IRA, which in turn will be subject to income taxes. In addition, while the estate tax is in currently in flux, assets passing by beneficiary designation are generally subject to the estate tax in the same manner as any other asset.

 

The best approach is to carefully consider and integrate beneficiary designations as part of a well-designated estate plan.