Posted July 24th, 2017 in Top Stories, Legal Insights with Tags Joel O'Malley, Minnesota Tip-Pooling, employment law tip pooling

Minnesota Tip-Pooling Laws (Chambers of Commerce Blog)

Published originally on Saint Paul Area Chambers of Commerce’s blog.

Minnesota restaurateurs face a unique state tip statute that makes it very difficult to ensure that tips can be pooled and divided among servers and non-servers (thereby lowering labor costs for the non-serving employees). The issue came to a head last week in a case against Surly Brewing Company, when a Hennepin County District Court judge ruled that Surly’s tips policy violated Minnesota’s tip-pooling laws. A hearing has now been set to determine damages owed to a class of over 100 servers and bartenders. The potential damages award is likely to be considerable.
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So what makes Minnesota’s tip-pooling rules so unique? Under federal law and that of most states, a restaurant can require tip-pooling among employees as long as those forced to participate in the pool “customarily and regularly” receive tips. Generally, only employees who normally receive tips can participate in the pool. Since the dishwasher is not getting tips for how clean the plates are, servers cannot be forced to pool their tips with him. Under federal law, employees who “customarily and regularly” receive tips may include, among others, hosts, bartenders, bussers (and, of course, servers).

Minnesota law is quite different. Whether a restaurant can require employees to participate in a tip pool does not depend on who “customarily and regularly” receives tips, but rather on a distinction between “direct service” employees, who can be required to participate, and “indirect service” employees, who cannot. The controlling regulations unhelpfully define a direct service employee as “one who in a given situation performs direct service for a customer.” An indirect service employee “is a person who assists a direct service employee,” including “bus people, dishwashers, cooks, or hosts.” Thus, unlike federal law, servers cannot be forced to share their tips with bussers and hosts who only assist servers, but do not themselves sufficiently perform direct service.

But while mandatory tip-pooling is permissible in Minnesota only for direct service employees, if the pool truly is voluntary and without participation by restaurant management, then anyone—including servers, bussers, hosts, etc.—may join the pool. The challenge, however, is a restaurant’s ability to legally encourage pools that remain sufficiently voluntary to meet this requirement.

This is primarily where Surly ran afoul of the law. The Court’s 45-page order was based on several key principles flowing from the Minnesota tips statute:

• The Court found the tips pool was not truly voluntary and without Surly’s participation, because Surly arranged a mandatory meeting of employees to vote on the pool.
• The Court concluded that Surly’s decision to select employee representatives to speak at the meeting was inappropriate.
• The Court stated that Surly’s decision to have indirect service employees vote on the tip pool was inappropriate.
• The Court held that Surly’s repeated advocacy for the tips pool was inappropriate under the statute.
• The Court decided the tips pool was unlawful because it included more than direct service employees.

The Court’s ruling was not for Surly’s lack of trying to comply. In fact, Surly twice revised its policy and practices to try to make the arrangement more voluntary. Surly’s efforts, the Court found, were simply more evidence of employer participation in the pool.

Surly is not the first Minnesota restaurateur to fall victim to State’s complex tip-pooling laws. Prior decisions have issued against Outback, Starbucks, and Pinstripes. The law is complex and compliance is difficult. Minnesota restaurateurs should consider auditing their policies and practices, in consultation with legal counsel, to ensure compliance and to implement corrective measures, if necessary.