Restaurant 'Tip Pooling' During the COVID-19 Pandemic

To put food on their own tables, restauranteurs and wait staff alike have found themselves on the front lines of a pandemic.  It is no overstatement to say that these workers are now putting their very lives on the line as they serve up to hundreds of potential coronavirus carriers every day. Now more than ever, society is encouraging restaurant patrons to generously tip waiters and delivery personnel—and, depending on the business, grocers—who are placing their own health in jeopardy to keep the rest of us fed.  But how should restaurants distribute these tips among workers? 

In a March 22, 2020 executive order, Tennessee Governor Bill Lee joined numerous other states in banning dine-in service at all restaurants in the state in response to the COVID-19 pandemic.  Although this original mandate was set to expire on April 6, Governor Lee issued follow-up orders on March 30 and April 13.  As of this writing, social distancing measures must continue until April 30.  Other states have adopted indefinite bans, and Tennessee restauranteurs and workers face uncertainty as it remains to be seen what actions Governor Lee and President Donald Trump will take in the coming weeks to either continue the quarantine or “re-open” the country.  

Meanwhile, although dine-in options remain off the menu, customers still have an appetite for eating out, and many others—especially those in the healthcare industry—simply do not have the time to cook at home.  A number of resourceful restaurants have responded to the dine-in ban by expanding their takeout, delivery, and curbside pickup options.  

This state-wide (and, indeed, nationwide) overhaul of the traditional restaurant model highlights the importance restauranteurs and employees to freshen up their knowledge of tip pooling laws.  

Tip Pooling.  

Tennessee state and federal laws allow tip pooling with a number of very important restrictions.  Traditionally, tip pooling occurs among “front of house” employees who have face time with the customer and provide service during the meal.  Think waiters and waitresses, bartenders and baristas, hosts and hostesses, servers and bussers.  Behind the scenes—or “back of house”—employees, such as chefs, cooks, dishwashers, janitors, and administrative staff typically cannot participate in tip pooling.  

In fact, federal law imposes an absolute prohibition on restaurant owners, managers, and supervisors participating in tip pools under any circumstances.  See, e.g., U.S. Department of Labor Wage and Hour Division Field Assistance Bulletin No. 2018-3.  Violators of this provision may lose the monetary value of any improperly withheld tips in addition to being subject to civil money penalties. 

However, as of 2018, federal law now allows tip pooling for employees who do not serve food—such as cooks or dishwashers—but only if the employer does not take a tip credit and all employees are paid at least the applicable Fair Labor Standards Act minimum wage.  

Mandatory Service Charges and Gratuities.  

Before the quarantine, many restaurants imposed mandatory or automatic gratuities on parties of a certain size.  Now, as restaurants continue to adapt, we are likely to see more restaurants imposing service charges or gratuities on all orders or upon orders above a certain dollar value.

But restaurants must be cautious when doing this.  On top of the federal regulations, Tennessee law strictly prohibits distributing any mandatory or automatic service charges, tips, and gratuities to employees who have not “rendered . . . service” to the customer. See Tenn. Code Ann. § 50-2-107(a)(1).  Employees who do not render such services include “back of house” employees as well as owners, managers, and supervisors.  Violations of this “Tip Statute” potentially expose the restaurant to fines or misdemeanor criminal repercussions.  See, e.g., Tenn. Code Ann. § 50–2–107(b); Tenn. Code Ann. § 40-35-111(e)(3).

As restaurant models continue to evolve and adapt to the challenges posed by COVID-19, and the lines between front of house and back of house employees continue to blur, it is of the utmost importance that restauranteurs endeavor to follow these state and federal laws to the letter.  In light of the above, restauranteurs may be well-advised to retain counsel to review their policies and procedures to ensure compliance if (1) the restaurant has instituted a mandatory or automatic service charge or gratuity or (2) previously “back of the house” staff—or managers or supervisors—are now directly interacting with customers and/or receiving or pocketing tips while fulfilling curbside orders.

But the regulations discussed in this blog post are only the ‘tip’ of the iceberg.  Ultimately, on top of the strict prohibitions discussed above, the question of who can participate in tip pooling will necessarily be a fact-intensive inquiry unique to the operations of each business.  

If you are a restaurant owner or employee needing assistance determining who should or should not be participating in your tip pool, please feel free to contact the attorneys of Meridian Law at (615) 229-7499, info@meridian.law, or www.meridian.law. 

Disclaimer: The information in this blog post (“post”) is provided for general informational purposes only, and may not reflect the current law in your jurisdiction. No information contained in this post should be construed as legal advice from Meridian Law, PLLC or the individual author, nor is it intended to be a substitute for legal counsel on any subject matter. No reader of this post should act or refrain from acting on the basis of any information included in, or accessible through, this post without seeking the appropriate legal or other professional advice on the particular facts and circumstances at issue from a lawyer licensed in the recipient’s state, country or other appropriate licensing jurisdiction.