Case Study:
Kilgore v. Outback Steakhouse of Florida, Inc. 160 F.3d 294 (6th Cir. 1998)
Employee servers who were required to pool their tips and have them redistributed to other types of employees who were not paid minimum wage challenge this practice as a violation of the minimum wage provision of the FLSA. The court permitted the arrangement
Kennedy, J.
Outback’s tip pooling arrangement requires its servers to contribute a share of their tips to a tip pool, which the restaurant distributes to hosts, bus persons, and bartenders. The servers’ mandated contribution is three percent of their “total gross sales,” which includes not only food and beverages, but also gift certificates and merchandise such as steak knives and T-shirts sold to customers at a server’s assigned tables. The restaurant paid its hosts and servers $2.125 per hour—one half the minimum wage at the time in question—with the required minimum wage difference made up through the tip pool arrangement. It was undisputed that hosts and servers never received less than the minimum wage for a workweek under this arrangement. Servers testified, however, that customer tips often fell short of the fifteen percent industry standard, and that Outback’s tip pool requirement “routinely” required them to “tip out” more than thirty-five percent of the tips they actually received. The FLSA, at 29 U.S.C. § 203(m), permits employers to use a tip credit to account for up to fifty percent of the minimum wage but only with respect to “tipped” employees. The statute defines a “tipped employee” as “any employee engaged in an occupation in which he customarily and regularly receives more than $30 a month in tips.” 29 U.S.C. § 203(t). Section 203(m) also states that use of the tip credit this way “shall not be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips.” Employee servers and hosts allege that the required tip-out amount was impermissibly excessive, and, therefore, not “customary and reasonable” as required under Labor Department interpretations of the relevant statutory sections. They also contended that Outback’s use of the tip credit to calculate the minimum wage was unlawful with respect to hosts because they did not qualify as “tipped employees.” Even though Outback prohibits hosts from accepting tips, they receive more than $30 a month in tips if tip pool receipts are included. Employees who receive tips from a tip pool are employees who “receive tips” according to Department of Labor regulations, case law, and Department of Labor practices. Accordingly, the hosts meet the qualifications of Sections 203(t) and 203(m). The hosts perform services to customers—greeting and seating, giving out menus, and sometimes “enhancing the wait” by serving food. These activities constitute sufficient interaction with customers in an industry where undesignated tips are common. Accordingly, the hosts are engaged in an occupation in which tips are customarily and regularly received and thereby qualify as tipped employees. AFFIRMED.
Q1. Do you consider the restaurant’s pool tipping policy to be fair to the servers who received the tips? Explain.
Q2. Does the court’s analysis make sense to you, that if hosts receive tips from the tip pot, then they are employees who routinely receive tips? Explain.
Q3. Why do you think the employer uses this method of payment?
Your answer must be typed, double-spaced, Times New Roman font (size 12), one-inch margins on all sides, APA format and also include references.