Colorado’s Tipping Point

New ruling may have implications for Colorado restaurants

On June 30, 2017 the Tenth Circuit Court of Appeals upended a long standing Federal Department of Labor rule that stated tips were the property of the employee and the employer had no say on how that money was directed.

Not so, said the court.  In deciding Marlow v. The New Food Guy, Inc., the court ruled that as long as the employer pays the employee above the full minimum wage or a higher amount, the employer has the right to determine how tips get divvied up. Keep in mind this is not the tipped minimum wage of $6.28, but the Colorado mandated minimum wage of $9.30 per hour.

The new ruling directly contradicts a case (Oregon Restaurant & Lodging Association v. Perez) heard last year in the Ninth Circuit Court. There the court ruled that employers could not direct where tips went, and could only be shared by regularly tipped employees and not back of house staff.

A little background information first: under Colorado law, the employer is allowed to take a tip credit, which means that some or all of the employee’s tips can be counted toward meeting the minimum wage. According to C.R.S. § 8-4-103 (6), customers must be informed if the employer retains any gratuities (with the exception of valid tip credits or a tip pooling arrangement) with a conspicuously placed card in the business measuring 12” x 15” printed with half inch lettering. If no card is posted, the employee may retain the tips. This holds true for catering businesses as well as restaurants.

The increase in the minimum wage impacts Restaurant 415 more than this new ruling says Seth Baker, a partner in the Fort Collins upscale eatery. “The increase in the tip minimum [wage] takes away our ability to pay the back of house fairly and give those workers raises,” he explains. “Our servers make—without their wages—sometimes up to $32 an hour. Back of house pay is a less, and it will stay that way. Unfortunately.”

Withholding tips is an option on the table, says Baker, but not one that he has discussed with his partners. The cost of labor represents a significant portion of restaurant expenses, and with the mandated yearly increases in minimum wage, those increases may require owners to consider withholding tips in the future.

The flip side of that is the impact on customer service. “Tips are definitely an incentive,” states Baker. “I know some [restaurant owners] who have battled with the concept of tips or no tips and they see a decline in customer service. There is less motivation to give great service, because front of house knows they’ll get paid the same, regardless of the service they provide.”

It’s possible the ruling may go before the Supreme Court. A group of state restaurant associations as well as the National Restaurant Association have petitioned to have the Oregon case taken up. But who knows if and when that will actually happen. Until that time, Colorado restaurateurs and caterers need to get a handle on the new regulations and make sure they are in compliance.


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