The U.S. Department of Labor (“DOL”) Wage and Hour Division recently recovered more than $72,000 for employees of Kentucky coffee shops that maintained illegal tip pools. The DOL found that coffee shop managers impermissibly retained a portion of server tips.

Under the federal Fair Labor Standards Act (“FLSA”), it is illegal for managers and supervisors to receive any portion of employee tips, except those tips obtained from a customer for a service they directly and solely provide. Managers and supervisors include any employee (1) whose primary duty is managing the enterprise or a customarily recognized department or subdivision of the enterprise; (2) who customarily and regularly directs the work of at least two or more other full-time employees or their equivalent; and (3) who has the authority to hire or fire other employees, or whose suggestions and recommendations as to the hiring or firing are given weight.

Notably, although managers and supervisors are often tasked with promoting legal compliance, in the recent DOL case, the managers’ unlawful retention of tips gave rise to legal exposure. To avoid running afoul of the FLSA and other laws, employers should ensure the enactment and enforcement of appropriate workplace policies, including tipped employee rules.

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