President Trump’s nominee to head the Labor Department, private sector lawyer Eugene Scalia, had a key role in one of the most controversial issues in workplace law in recent years: control over the tips workers receive from customers. Scalia, son of the late Supreme Court justice Antonin Scalia, represented management in one of the defining legal cases allowing workers’ tips to be redistributed among employees. Congress eventually rewrote federal law in part to undo his victory.
Tipping is a simple practice that can be a surprisingly complex issue in workplace law. Most regulations involve management and worker relations, especially involving pay. One of the main roles of unions is to push management to prove greater pay and benefits. Tipping, however, involves customers giving money directly to workers, bypassing management and giving unions little role in the process. Taking tips into account can create unusual complications. Federal law, for example, allows workers to be paid far less than the regular minimum wage provided they get enough tips to make up for it.
One issue with tipping is that usually only certain workers get tips, mainly servers and bartenders. Employers in the service industry have long argued that tips create serious imbalances in the take-home pay for their staff, creating friction at the workplace and making hiring difficult. Few, for example, want to work as cooks when the waiters make far more money thanks to tips, the employers claim. Some states, such as California and Nevada, prohibit lower minimum wages for tipped employees, so the differences can be significant.
A little over a decade ago, the service industry began pushing to allow employers to redistribute workers’ tips. Las Vegas’ Wynn Casino became one of the earliest and most prominent examples in 2006 when it instituted a redistribution policy, the only casino in the city to have one. It argued the policy was needed because its dealers, who were paid above the minimum wage, were often making considerably more than their supervisors, thanks to gratuities from high-rolling customers.
“This results in an inverted system whereby the best dealers do not want to be promoted as should be the case in any employment situation,” the casino said when it announced the policy in 2006. The casino gave 15% of the tips to the supervisors. The state labor commission OK’d the practice.
The dealers objected to losing the tips, joined the Transit Workers Union the next year, and sued the casino to stop the policy. Lawyers for the dealers argued it was an illegal taking of workers’ money and estimated that they collectively lost $50 million over a decade thanks to the policy.
A 2011 rulemaking by the Obama Labor Department, prompted by cases such as the Wynn Casino, attempted to put an end to the policy by saying that tips could not be taken by employers. The restaurant and hospitality industry fought the rule. The Wynn case eventually went to the Nevada Supreme Court in 2013.
A team of lawyers representing the casino and lead by Scalia won by arguing that the casino never took the money in the first place. The court ruled that the law “prohibits an employer from taking and keeping his or her employees’ tips. But the statute does not prohibit a tip policy that splits the tips among the employees.” The Federalist Society, a conservative lawyers’ association Scalia belongs to, has cited the case as one of his most notable accomplishments.
The issue nevertheless remained embroiled in the courts, as workers filed additional suits arguing that the policy violated the Fair Labor Standards Act, and in 2016, a federal court agreed. The case was appealed to the Supreme Court last year, but it refused to take it up.
The casino’s former owner, Steve Wynn, is a long-time associate of Trump, having had dealings with him in the real estate industry going back to the 1980s. Wynn supported Trump’s 2016 presidential bid and was named finance chair of the Republican National Committee after his election. Under Wynn, the committee raised more than $120 million in 2017, the most ever for a non-election year.
The same year the Labor Department under the Trump administration initiated the process to rewrite the regulations for tipping under the FLSA. It proposed to formally allow employers in all states to take the tips, provided they pay the relevant local minimum wage. This was the same policy the Wynn Casino used. The regulation, the department said at the time, “[W]ill allow for employers to provide in their agreements with employees for tip sharing among a larger tip pool of employees.”
Congressional Democrats objected to rewriting the rule and included language in the 2018 omnibus budget bill that rewrote the FLSA to explicitly prohibit any taking of employee tips by managers. Following a showdown with Congress over the budget, Trump signed the bill last year, ending the debate over tip-pooling.
Last year, Wynn Casino abandoned its tip-pooling policy. Steve Wynn stepped down from his positions at the RNC and as head of his namesake casino last year following multiple accusations he sexually harassed female staff, which he has denied.
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