When Is Minimum Wage Not Minimum Wage?: How Restaurants Screw Their Servers With Tip Credits And Tip Pools--Part I

Employment Attorneys Serving Northern and Central New Jersey

            Most people are aware of today’s fight over the minimum wage.  Although the federal minimum wage has been stuck at $7.25 per hour for many years now, Congress will not allow an increase.  Because of this, President Obama took executive action to raise the minimum wage for federal contractors to $10.10 per hour.  States have taken it upon themselves to raise the minimum wage.  New Jersey voted in 2014 to raise its minimum wage to $8.25 per hour and indexed it to inflation which is why it now stands at $8.38.  I think that most people would agree that $7.25 or $8.38 or even $10.10 per hour is hardly a living wage for full-time workers.  So how in the world is it legal for restaurants to pay servers $2.13 per hour?

            This may be a little misleading.  The nearly three million people who serve us at restaurants still must earn minimum wage.  It is just that restaurants don’t have to pay it.  Starting in 1966, the government made it legal for restaurant owners to steal part of the tips we pay to servers to meet their minimum wage obligations.  Under 29 U.S.C. § 203 (m) servers were allowed to be paid at half the minimum wage as long as their tips made up the other half.  After this law came into effect, if we appreciated the service we received and decided to tip our server, instead of the server receiving minimum wage plus our little extra to help them along, restaurant owners were allowed to take a portion of that tip as a “tip credit” and use it to pay the server’s minimum wage.  Then, in 1996, under the Small Business Job Protection Act, the National Restaurant Association (the other, less lethal, but just as notorious NRA) under the leadership of the Pokemon quoting, former presidential candidate, Herman Cain (the man who brought us “Uzbekibekibekistanstan”), was able to successfully lobby Congress to freeze the wages restaurateurs were required to pay servers at $2.13 per hour.  The rest they could take out of servers’ tips to meet the minimum wage.  Apparently, Congress labels Applebees, Fridays and Starbucks as “small businesses” that need protection from those greedy people who want minimum wages.

            To make matters worse, the law also allows for “tip pooling”.  While tip pooling was supposed to be something that servers could agree to voluntarily, increasingly, employers are requiring it and courts are upholding such a requirement.  Tip pooling can be beneficial to servers as it can lessen some of the unfairness to servers if they are assigned to a poor tipper or to a slow section of a restaurant.  However, restaurants have been able to broaden certain definitions and requirements so that they can force servers to use their tips to subsidize an employer’s obligation to pay minimum wages to people who are not normally tipped.  While this all seems exceedingly unfair, the law does provide some protection to prevent wide scale abuses of the tip credit and tip pooling.   What servers should know about these protections will be covered in Part II of this article.