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USA: FLSA Amendment Bars Employers from Retaining Tips But Removes DOL Prohibition on Tip Sharing

An amendment to the Fair Labor Standards Act (FLSA) in the omnibus budget bill, “Consolidated Appropriations Act, 2018,” passed by Congress and signed by President Donald Trump on March 23, 2018, provides that an employer “may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.”

However, the amendment also expressly rescinds the portions of Department of Labor (DOL) regulations that prohibited employers from requiring tipped employees (e.g., servers) to share their tips with traditionally “non-tipped” employees (e.g., cooks). That prohibition is no longer valid, thus restoring federal law as it existed prior to the 2011 regulation, i.e., permitting, under federal law, tipped and non-tipped workers to share tips, as long as the employer does not take a “tip credit.”

Tip Pooling: A Brief History of Jurisprudence under FLSA

The tip credit under the FLSA permits an employer to pay its tipped employees less than the federal minimum wage of $7.25 per hour, and a minimum of $2.13 per hour, relying on customer tips to satisfy the difference between the hourly wage and the minimum wage.

In Cumbie v. Woody Woo, Inc., 596 F.3d 577 (9th Cir. 2010), the U.S. Court of Appeals for the Ninth Circuit held that if an employer uses the tip credit, the only employees who can participate in a tip pool or share are those who customarily and regularly receive tips, that is, “front of the house” employees such as servers, bussers, runners, and bartenders. Conversely, the Ninth Circuit held, if the employer does not use a tip credit, no such restriction applies.

Thus, under federal law as interpreted in Cumbie, employers who did not utilize a tip credit could allow both tipped and non-tipped workers to share in the tips received. This practice mainly affected employers in states that do not permit the use of tip credits because employers in those states necessarily did not take a tip credit under federal law.

The Obama Administration did not like this ruling and, in 2011, did something about it. That year the DOL, expressly noting its disagreement with Cumbie, issued a final rule stating that tips are the property of the employee and can be pooled only among customarily tipped employees even if the employer has paid its employees at or above the minimum wage and has not taken a tip credit. 29 C.F.R. § 531.52 (2011).

Employers, however, did not like the new rule and, likewise, did something about it. The Oregon Restaurant and Lodging Association brought suit against the DOL, challenging the validity of the 2011 rule in light of Cumbie. A similar challenge to the rule was raised in a Nevada lawsuit by casino dealers who alleged their employer violated the FLSA by requiring them to share tips with casino floor supervisors. In both cases, the plaintiff-employees were paid at or above the minimum wage and the issue was whether they could be compelled to share their tips with non-tipped employees (as allowed under Cumbie) or whether such practice was prohibited (as set forth in the DOL’s new 2011 rule). The district courts in both cases deemed the 2011 rule invalid, concluding that, in light of Cumbie, restrictions on tip pooling apply only when a tip credit is taken.

In a split decision on appeal, the Ninth Circuit overturned Cumbie, holding the DOL had the authority to regulate tip pooling and its 2011 rule was owed deference under the standard set forth in Chevron U.S.A., Inc. v. NRDC, 467 U.S. 837 (1984). Oregon Restaurant & Lodging Assn. v. Perez, 816 F.3d 1080 (9th Cir. 2016). The dissent in Oregon Restaurant criticized the DOL for attempting to circumvent Cumbie, stating, “[N]ow, after losing in Cumbie, the DOL has decided to go through the backdoor by promulgating a new rule codifying its argument in Cumbie and its preferred interpretation of section 203(m).”

Although a petition for rehearing en banc was denied, 10 judges on the Ninth Circuit dissented from the denial, signaling a deep circuit split. Oregon Restaurant & Lodging Assn. v. Perez, 843 F.3d 355 (9th Cir. 2016) (reh’g and reh’g en banc denied). The dissent’s description of the circuit split left little doubt this issue would be headed to the Supreme Court: “‘Circuit split’ does not fully describe the resulting state of affairs. It is more like we have spun out of the known legal universe and are now orbiting alone in some cold, dark corner of a far-off galaxy, where no one can hear the scream ‘separation of powers.’” Not surprisingly, the defendant-restaurant association petitioned the Supreme Court for a writ of certiorari, which is pending. Meanwhile, the tip-pooling issue arose before the U.S. Court of Appeals for the Tenth Circuit. Rejecting the Ninth Circuit’s approval of the 2011 rule, the Tenth Circuit adopted the view expressed in Cumbie that restrictions on employers’ use of tips apply only when a tip credit is taken, and held that the 2011 Rule to the contrary was invalid. Marlow v. New Food Guy, Inc., 861 F.3d 1157 (10th Cir. 2017).

Trump Administration’s Proposed Rule Change

Inheriting these competing views, and facing a potential Supreme Court showdown, the Trump Administration DOL reversed course. Siding with the Tenth Circuit and the dissent in Oregon Restaurant, the DOL in late-2017 issued a Notice of Proposed Rulemaking to rescind the tip-sharing prohibitions of the 2011 rule. However, nothing in the language of the proposed new rule would have prevented members of management, or even employers themselves, from retaining employee tips; the proposed rule did not in any way regulate tip distribution where no tip credit was sought and taken. As a result, employee advocacy groups and members of Congress balked. The DOL’s new proposal received even further backlash when accusations arose that the agency intentionally secreted a pre-proposal study showing this rule could result in employee tips being retained by employers.

New Congressional Amendment

The amendment to the FLSA unequivocally states that employers may not “retain” employee tips regardless of whether a tip credit is taken. The amendment extends this concept to prohibit “managers” and “supervisors” from retaining tips, although it fails to define those terms and, therefore, creates ambiguity as to whether employees with any supervisory authority would be prohibited from sharing tips, even if they are in positions that traditionally do so.

The amendment further provides that a violation of this provision subjects the employer to a civil penalty of up to $1,100 for each such violation, as well as liability to the affected employee(s) for the unlawfully retained tips and an equal amount in liquidated damages. Moreover, if the employer retains tips and takes a tip credit, the penalty also includes loss of the tip credit in addition to disgorgement of the unlawfully retained tips.

To the extent that it precludes employers from keeping tips, the provision is in accord with the 2011 rule. However, in a return to the pre-2011 rule, the amendment will allow employers to require traditionally tipped employees to share their tips with traditionally non-tipped employees — as long as the tipped employees are paid at least the full minimum wage. Furthermore, because Oregon Restaurant was based on deference given to the 2011 rule — a rule now invalidated by Congress — that holding presumably is no longer good law and, instead, Cumbie is revived. In addition, the DOL’s current proposed rule is likely to be deemed moot. Finally, because the amendment does not directly address divergent state law provisions, litigation may arise regarding state law provisions that conflict with the amendment, as employers determine how to resolve that conflict.

To recap, the amendment to the FLSA establishes a compromise between the Cumbie rule advocated for by employers and the Obama Administration’s 2011 Rule: it permits tip splitting among and with non-supervisory, non-service employees (such as cooks) where no tip credit is taken, but otherwise forbids distribution of tips to such employees when a tip credit is taken, and categorically bans retention of tips by an employer, manager, or supervisor under either scenario.

For more information on these articles or any other issues involving labour and employment matters in United States, please contact John Sander, Principal at Jackson Lewis P.C. (www.jacksonlewis.com) at John.sander@jacksonLewis.com

UAE: Ministerial Resolution No. 31 of 2018 Introducing Part-Time Employment System

The law, which came into force on 1 March 2018, permits companies to recruit employees on a part-time basis and allows individuals to work for more than one employer.  The key aspects of the law are:

  1. Individuals who fall under professional skills level one or two and therefore as a minimum have a diploma qualification may work part time for more than one employer;
  2. Consent from the primary employer is not required; however the employee must have a work permit to work for each employer;
  3. MHRE will notify all employers who the employee works for upon issuance of a new work permit;
  4. Employers are not permitted to restrict the employee’s employment using non-compete and confidentiality clauses in the employment contract unless a court order to the contrary has been obtained; and
  5. The primary employer is responsible for payment of end of service gratuity and annual leave and any other financial obligations which can be pro-rated, factoring in hours worked and wage. The employee may also contractually agree further benefits with any secondary employers.
For more information, please contact L&E Global.

Sweden: Revised proposal for a new act on trade secrets suggests further liability when an employee acquire unauthorized access to a trade secret

The proposed changes to Swedish legislation are necessary to implement an EU directive on the protection of trade secrets. The revised proposal, inter alia, suggests that an employee shall be liable for damages if the employee acquires unauthorized access to trade secrets to which the employee otherwise have lawful access due to employment or other similar grounds, for example by copying the employer’s trade secrets to his/her personal storage space. An employee’s attack on the employer’s trade secrets is thus proposed to include acts of transferring trade secrets from the workplace, e.g. by downloading or copying, and it will not be required that the employee actually uses or reveals the trade secrets, which is the case today.

The revised proposal on a new act on the protection of trade secrets no longer includes further criminal liability for employees who attack a trade secret to which they have lawful access due to employment or other such grounds.

For more information on these articles or any other issues involving labour and employment matters in Sweden, please contact Robert Stromberg, Partner at Cederquist (www.cederquist.se) at robert.stromberg@cederquist.se

Romania New changes in the Labour Code targeting undeclared employment

In a continuous effort to further reduce undeclared employment, a new law has introduced a series of changes into the Labour Code. New rules on the registration of the individual employment agreement and new sanctions on disregarding the rules imposed by the Labor Code were introduced.

In July 2017 the term of undeclared employment was first introduced into the Labour Code and the notion was regulated. Law no. 88/2018 that was enforced in April and introduces new rules on the registration of the individual employment agreements that is mandatory and has to be made prior to the commencement of the activity, meaning that all individual employment agreements have to predate the commencement of the activity. Disregarding this rule is punishable by administrative fine of approximately 4.350 Euro for each employee that is received to perform activity without the existence of a prior individual employment agreement, but no more than 43.500 Euro for all the irregularities that are found by the labour inspectors. A copy of the individual employment agreements has to be kept at the employee’s workplace in order to verify the date of the agreement. The employer has to keep an accurate registration of the working hours for all employees, including the mobile ones and the ones that are subject to the new teleworking law.

For more information on these articles or any other issues involving labour and employment matters in Romania, please contact Magda Volonciu and Associates

Norway: Proposal on new regulation regarding hiring of labour

The government proposes a prohibition of so-called “Zero-hour”-contracts and restrictions on hiring of workers in the construction industry. The government’s proposal contains four changes in the current Working Environment Act: 1) A clear definition of the content of permanent employment. The definition requires, among others, that the employee is secured a certain predictability in his/her employment (e.g. a defined percentage of employment). Thus, so-called “Zero-hour”-contracts, meaning contracts with no guarantee of work, will not comply with the proposed change. 2) Clarification of the requirements for the employment contract, concerning predictability with regards to when the work shall be performed. 3) A new legal requirement for temporary employment in temporary-work agencies when hiring out employees to temporary positions. 4) Changes in the opportunity to enter into local agreements when hiring from companies in the construction industry. The government’s proposal will be further processed in  the Norwegian Parliament with the purpose of possible new legislation.

For more information on these articles or any other issues involving labour and employment matters in Norway, please contact Storeng, Beck & Due Lund (SBDL)

Norway: Committee on whistleblowing publishes its review and evaluation of current legislation

The committee on whistleblowing that was appointed by the Government in November 2016 to review and evaluate the current whistleblowing regulation in the Working Environment Act, published their report in end of March 2018. The report contains a comprehensive assessment of various issues related to whistleblowing, and proposal for legislative amendments and other measures to improve the protection of whistle-blowers. The committee proposes to keep the current regulation, but to clarify the content of the regulation. The committee also recommends that an independent board is established to consider and resolve claims from whistleblowers who assert unlawful retaliation. Further, the committee proposes that a national whistleblowing ombudsman is established with the responsibility to provide guidance and support to whistleblowers, the person subject to the whistleblowing, employers, employees’ representatives and safety representatives at the work place.

For more information on these articles or any other issues involving labour and employment matters in Norway, please contact Storeng, Beck & Due Lund (SBDL)

Luxembourg: Law of 8th April 2018 amends Labour Code

A new law dated 8 April 2018 voted by the Luxembourg Parliament on 13 March 2018 and published on 11 April 2018 will amend numerous legal provisions of the Labour Code, including:

  1. Maintenance of the employee’s salary during sick leave: employees following a working schedule are entitled to their monthly base salary and any supplements which would have been paid during sick leave, had the employee worked as initially planned. Employees working on a normal basis (without a work schedule) are entitled to a payment based on the average daily salary of the last 6 months preceding the first day of sickness;
  1. Students:students hired on the basis of a fixed-term contract can henceforth work an average of 15 hours per week (instead of 10 hours), calculated within a reference period of 4 weeks/1 month;
  1. Resignation by employee: increase of an employee’s rights in case of the resignation by the employee with immediate effect for gross misconduct;
  1. State aids:change of state aids and extension of financial programs for employees receiving unemployment benefits.

The aforementioned legal provisions enter into force on the 4th day of their publication in the official gazette (“Mémorial”).

For more information on these articles or any other issues involving labour and employment matters in Luxembourg, please contact Christian Jungers, Partner at KLEYR | GRASSO (www.kleyrgrasso.com) at christian.jungers@kleyrgrasso.com

India: Increase in the maximum limit of gratuity payable to employees

The Payment of Gratuity Act, 1972 (the “Gratuity Act”) applies to establishments employing 10 (ten) or more persons. The main purpose for enacting the Gratuity Act is to provide social security to employees after retirement, whether retirement is a result of the rules of superannuation, or physical disablement or impairment of vital part of the body. The Gratuity Act has been amended and provides that the amount of gratuity payable to an employee shall not exceed the amount specified by the Central Government from time to time. The notification issued by the Ministry of Labour and Employment on March 29, 2018 has increased the maximum limit of gratuity payable to employees covered under the Gratuity Act to INR 20,00,000 (Indian Rupees Twenty Lakhs) from INR 10,00,000 (Indian Rupees Ten Lakhs).

In addition to the above, for the purpose of calculation of continuous service for employees on maternity leave, the notification by the Ministry of Labour and Employment has increased the total period of maternity leave to 26 (twenty six) weeks from 12 (twelve) weeks. This amendment is also by way of a notification from the Ministry of Labour and Employment and is in line with the amendments made to the Maternity Benefit Act, 1961.

For more information on these articles or any other issues involving labour and employment matters in India, please contact Avik Biswas, Partner at IndusLaw (www.induslaw.com) at avik.biswas@induslaw.com

France: Macron’s reform deemed constitutional by the Conseil Constitutionnel

President Macron’s rewriting of the French labour code has entered a decisive phase: its inscription into law. On March 21, the Conseil Constitutionnel approved nearly all the ordinances that the executive signed in September of last year, overhauling many labour and employment rules.

Up to now, these ordinances only had a regulatory value, but they will now be upgraded to laws.

The Conseil Constitutionnel did strike out some marginal points of the reform. Notably, it censured the waiver that allowed employers not to hold by-elections for empty seats on the social and economic committee when the previous elections had been cancelled due to an imbalance in representation between men and women.

As a reminder, the reform is already effective. It will now remain so, but after this validation by the Conseil Constitutionnel, and its ratification by the executive on March 29, it will have a stronger form as law.

For more information on these articles or any other issues involving labour and employment matters in France, please contact Joël Grangé, Partner at Flichy Grangé Avocats (www.flichygrange.com) at grange@flichy.com

Canada: Workers who receive legal medical assistance in dying as a result of a work related injury or disease will be deemed to have died as a result of the work related injury or disease.

In response to the passage of federal Bill C-14, An Act to amend the Criminal Code and to make related amendments to other Acts (medical assistance in dying), the Government of Ontario enacted Bill 84, the Medical Assistance in Dying Statute Law Amendment Act, 2017 (“Bill 84”).

Bill 84 amended the Workplace Safety and Insurance Act, 1997 to provide that a worker who receives medical assistance in dying is deemed to have died as a result of the injury or disease for which the worker was determined to be eligible to receive medical assistance in dying, if the medical assistance in dying was provided in accordance with federal law.

The Bill 84 amendments to the Workplace Safety and Insurance Act, 1997 took effect on May 10, 2017.

On April 5, 2018, the Workplace Safety and Insurance Board (the “WSIB”) published a new policy, entitled “Medical Assistance in Dying”. The new policy provides that if a worker receives medical assistance in dying as a result of a work related injury or disease in accordance with federal and provincial law, the worker will be deemed to have died as a result of the work related injury or disease.

A worker who receives medical assistance in dying as a result of a work related injury or disease in accordance with federal and provincial law will generally be entitled to WSIB health care benefits and/or services. Further, the survivor(s) of a worker who legally qualifies for medical assistance in dying as a result of a work related injury or disease will generally be entitled to WSIB survivor benefits.

The policy provides guidelines for those cases where an injured worker who receives medical assistance in dying also has a non-work-related condition which may have impacted his or her eligibility for legal medical assistance in dying.

The new policy applies to all decisions with respect to entitlement periods on or after April 5, 2018, for accidents on or after January 1, 1998.

For more information on these articles or any other issues involving labour and employment matters in Canada, please contact Robert Bayne, Partner at Filion Wakely Thorup Angeletti (www.filion.on.ca) at rbayne@filion.on.ca