Employers’ right to keep employee tips

A recent decision by the federal appeals court that covers Oklahoma ruled that employers are not required to share customer tips with employees who are already receiving wages at or above the minimum wage amount.

Employees were already being paid more than minimum wage

Employee Bridgette Marlow brought suit against her employer, The New Food Guy, Inc. d/b/a Relish Catering, claiming the company violated the federal Fair Labor Standards Act. Under the FLSA, employers are required to pay minimum wage of $7.25 per hour, plus time and a half for every hour worked as overtime.

Interestingly enough, Relish Catering paid Marlow well above the minimum wage. Marlow was paid $12 per hour and $18 per hour for overtime work. Despite this, Marlow argued that under the FLSA’s “tip credit provisions,” the employer should have been turning over a share of all tips to the employees, in addition to their hourly wages. Specifically, Marlow was referring to the fact that at the end of each catering event, Relish accepted tips from customers, yet chose not to supplement the hourly wage of any of its workers with this tip money. Instead, Relish Catering kept these gratuities.

Marlow first sued Relish Catering in the federal court in Colorado, arguing that the company was violating the FLSA by keeping the tips. The court disagreed, holding in favor of Relish Catering and ruling that the employer was entitled to retain the tips.

Appeals court holds FLSA was not violated

Marlow appealed the lower court’s decision, arguing that Relish Catering’s withholding of tips not only violated the FLSA, but also a U.S. Department of Labor regulation interpretation of the provision that employers may not retain tips.

The Tenth Circuit Court of Appeals issued a decision on June 30, 2017, holding:

  1. The FLSA’s restriction on employer’s use of tips applies only when an employer uses those tips to meet the minimum hourly wage. If an employer is already paying more than minimum wage without tips, then the FLSA does not restrict the employer’s use of these tips.
  2. The U.S. Department of Labor’s interpretation that tips are always the property of the employee is invalid. The federal agency did not have the authority to make this rule because the FLSA’s provision is clear and leaves no gap needing to be filled.

Therefore, since Marlow was being paid well above minimum wage, Relish Catering was not required to distribute the gratuities to the employees. Further, the company had the right to make it a condition of employment that it would own all of the gratuities paid by any catering customers.

Significance and takeaway

This Tenth Circuit Court of Appeals ruling directly conflicts with another appeals court’s ruling that the FLSA tip restrictions actually do apply to employers who are paying the full minimum wage.

Since Oklahoma is part of the appeals circuit from which the Relish Catering ruling was issued, Oklahoma employers who pay employees an hourly wage that meets or exceeds the minimum wage amount may rely on this opinion and retain customer tips as part of a condition of employment. However, this split in appeal courts’ rulings may increase the likelihood that this issue ultimately makes it to the U.S. Supreme Court for a final decision.

  • Marlow v. New Food Guy, Inc., No. 16-1134 (10th Cir. June 30, 2017)