The Fair Labor Standards Act (FLSA) restricts the tipping practices of companies that use tips as a supplement to reach their federal minimum wage obligations—the so-called tip credit. The FLSA forbids companies from requiring tip-earning employees—such as waiters—to share tip money with untipped staff—such as line cooks. The FLSA imposes no such demand on companies that do not use a tip credit. Nonetheless, the Department of Labor issued a regulation requiring all businesses to follow the tip-pooling rule, whether they use the tip credit or not. Restaurants that do not use tip credits sued to invalidate the regulation but the courts upheld it on the theory that the FLSA’s silence on this issue created an ambiguity and the courts would defer to the agency’s interpretation. . PLF supported the National Restaurant Association’s petition for Supreme Court review. The Supreme Court denied the petition August 20, 2018.
The Fair Labor Standards Act (FLSA) sets certain rules for the federal minimum wage. Employers can fulfill the minimum wage obligation in one of two ways: they can set the base hourly wage at or above the minimum, or they can set the wage below the minimum and use employee tips to fill in the gap. This is known as a tip credit. But businesses that want to use a tip credit have an additional requirement: tipped employees must not share tips with non-tipped staff. If a business doesn’t use the tip credit, though, it may adopt whatever tip-sharing policy it wants. This did not sit well with the Department of Labor. Undeterred by the lack of authority in the FLSA, the Department extended the tip-sharing rule to every employer, regardless of whether they took a tip credit.
A coalition of restaurants who do not use the tip credit sued to invalidate the regulation. A deeply divided Ninth Circuit Court of Appeals upheld the regulation, though, by deferring the Department’s interpretation of the FLSA. Normally, it is the job of the courts to interpret the laws, but the past several decades have seen courts more and more often deferring to agency interpretations whenever a term—or in this case, silence—may be considered “ambiguous.” The court’s extreme deference allows the agencies to usurp legislative power to write the laws and judicial power to interpret them. The restaurants asked the Supreme Court to review the case and PLF filed an amicus brief arguing that agency rules must stick to the language of the statute in order to keep government power separated into three branches. That means the Department of Labor may not impose rules on businesses that Congress has chosen not to regulate. The Supreme Court denied the petition August 20, 2018.