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Federal appeals court rules tip distribution violates labor standards

[JURIST] The US Court of Appeals for the Ninth Circuit [official website] ruled [opinion, PDF] Tuesday that employers may no longer collect tips from service employees and share them with support staff even if the tipped employees are receiving minimum wage. 29 USC § 203(m) [text] allows employers to use tips to apply to the minimum wage of an employee, called a tip credit if the workers are "customarily and regularly" tipped. The court upheld a 2011 Department of Labor (DOL) [official website] rule limiting tip pooling to customarily tipped employees such as waiters because section 203(m) of the Fair Labor Standards Act (FLSA) of 1938 [text, PDF] was silent on the practice of tip pooling.

[W]e conclude that Congress has not addressed the question at issue because section 203(m) is silent as to the tip pooling practices of employers who do not take a tip credit. There is no convincing evidence that Congress's silence, in this context, means anything other than a refusal to tie the agency's hands. In exercising its discretion to regulate, the DOL promulgated a rule that is consistent with the FLSA's language, legislative history, and purpose.
Prior to this ruling, only businesses that engaged in the tip credit practice were impacted by the 2011 rule.

The way in which employees are fairly compensated has become a growing national issue in the past couple of years. Last week he Oregon legislature approved a law [JURIST report] to create the highest minimum wage rate in the country. According to a survey conducted by the Chicago Booth School of Business Initiative on Global Markets, economists disagree about the effects of a minimum wage increase on unemployment. Of the participating experts, 34 percent agreed that increasing the minimum wage would make it harder for low-wage workers to find jobs; 32 percent disagreed, and 24 percent were uncertain [JURIST backgrounder]

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