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Trump Administration Pushes Rule to Allow Tip Theft

WASHINGTON—Anger at a Trump administration proposal to make tips the property of employers intensified on Feb. 1, after Bloomberg News reported that

Donald Trump strikes again.

the Department of Labor had suppressed an in-house analysis projecting that the rule could lead to workers losing billions of dollars in tips.

“It’s outrageous, but it’s not surprising to us. We’ve been fighting the National Restaurant Association on this issue for years,” Saru Jayaraman, president of Restaurant Opportunities Centers United, tells LaborPress. The restaurant-industry trade group, she adds, is “working with the Trump administration to actually steal their workers’ tips.”

The proposed rule, issued Dec. 5 by the Department of Labor, is ostensibly intended to allow employers to collect tips into a pool that can be shared with “back of the house” staff such as dishwashers and kitchen-prep workers. It would exempt them from an Obama-era regulation that limits tip pooling to “customarily and regularly tipped occupations, such as servers, bartenders, and bussers”—as long as they pay workers the full minimum wage and not the $2.13 an hour federal subminimum for tipped workers.

However, the proposal does not require employers to distribute all pooled tips to employees. In fact, it directly presumes that some will pocket tips. Employers might use the money, it says, “to make capital improvements to their establishments (e.g., enlarging the dining area to accommodate more customers), lower restaurant menu prices, provide new benefits to workers (e.g., paid time off), increase work hours, or hire additional workers.”

It argues that “these are also potential benefits to employees and the economy overall.” With “minimum wages being made less binding,” it adds, “some baseline workers could be harmed, due to lower overall compensation”—but that would probably create more jobs in the affected industries and occupations,

The proposed rule would affect the nation’s more than 6 million tipped workers, of whom more than 60% work in the restaurant industry. The suppressed study, according to Bloomberg News, estimated that they would lose billions of dollars in tips if the rule went into effect. Senior Department of Labor officials, its sources within the agency said, at first ordered staff to rejigger their methods of figuring to show lower losses, and then the White House gave the go-ahead to publish the proposal without any concrete numbers.

The proposal said it was offering a “qualitative” analysis because trying to project actual numbers would be too speculative, as it was “unable to quantify how customers will respond.”

Michael Hancock, a former assistant administrator at the department’s Wage and Hour Division, told Bloomberg that he had never seen it exclude the cost-benefit analysis from a significant regulation. If the data isn’t solid, he said, “you identify those areas where you have uncertainty.”

In an analysis of the proposed rule released Dec. 14, the Economic Policy Institute said it was “deeply unusual” that the Labor Department did not provide a quantitative estimate of how much it would cost workers, “given that they are required to do so by law.” One plausible reason, it said, was “that any good-faith estimate would have shown this rule will result in a substantial shift of tips from workers to employers. It appears that the Trump Department of Labor is willing to ignore legally required steps in the rulemaking process in an effort to hide the fact that they are proposing a rule that will put workers’ hard-earned tips into the pockets of employers.”

The EPI said that its previous studies have found 12% of tipped workers in Chicago, New York, and Los Angeles have had tips stolen by their bosses. “With that much illegal tip theft currently taking place, it’s clear that when employers can legally pocket the tips earned by their employees, many will,” it added. “And although the bulk of tipped workers are in restaurants, tipped workers outside the restaurant industry—such as nail salon workers, casino dealers, barbers, and hairstylists—could also see their bosses start taking a cut from their tips.”

The main brake on employers pocketing tips, the study said, would be fear that workers could get another job that paid more. By that logic, it added, it would be unlikely for employers to share tips with nontipped low-wage workers, “since the fact that they already have workers in those jobs means they are already paying what is needed to attract workers”—with the one exception being if workers are in a union.

Fifteen states, including New York, California, and Pennsylvania, have stronger tip-protection laws that would not be pre-empted by the rule. But some employers, the EPI said, might pocket tips anyway, either because they believed it was legal under federal regulations or because they were using confusion about the law “as a cover for deliberate theft.”

The $2.13 federal subminimum wage for tipped workers has not been raised since 1991. Seven states, including California, Nevada, Alaska, and Minnesota, require employers to pay tipped workers the full minimum wage.

In those states, says ROC United’s Jayaraman, it’s common practice for restaurant servers to share tips with kitchen staff—and there are strict prohibitions against employers taking “any portion of the tips.” A 2014 ROC study found that the number of restaurant jobs was growing faster in those states than in those that had the $2.13 subminimum.

The ROC is campaigning for “one fair wage”—that all workers get the full minimum wage, based on the principle that tips are supposed to be “on top of a wage, not instead of a wage.” New York Gov. Andrew Cuomo has suggested ending the state’s subminimum, there will be an initiative to do that on the ballot in Washington, D.C.’s June municipal elections, and the ROC is collecting signatures for a similar initiative in Michigan.

Depending on tips to make more than $2.13 an hour is “the most insecure livelihood you can think of,” says Jayaraman, and that precarity makes tipped workers, who are mostly women, more vulnerable to sexual harassment. Restaurant workers suffer the highest rates of sexual harassment of any industry because they have to put up with inappropriate customer behavior to get tips.” The seven states where tipped workers get the full minimum wage “have half the rate of sexual harassment,” she adds.

The Labor Department is accepting public comments on its proposal until Feb. 5, and has already received more than 300,000, says Jayaraman. The ROC plans to deliver more to department offices around the country on the day of the deadline.

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