In February 2016, the Ninth Circuit Court of Appeals issued a ruling involving the Wynn Las Vegas that undermines current state law on mandatory tip pooling arrangements.

Some tip pools are designed to spread the risk of low tipping customers among all tipped employees, such that only tipped employees participate in the tip pool.  Other tip pooling arrangements are designed to share tips with non-tipped employees who are considered deserving of tips, but who are not generally tipped by customers.  In California, this second type of tip pool has been found lawful under the theory that employees who do not receive tips directly from customers but who are “in the chain of service” are equally deserving of a portion of the tip; the customer is tipping for the entire experience to which these other employees contribute.  The recent Ninth Circuit decision determined that this second type of tip pooling arrangement is not lawful based on a federal regulation that until now, was ignored by the federal district courts.

The regulation expressly prohibits employers from requiring tipped employees to contribute to a tip pool shared with non-customarily tipped employees, i.e., kitchen staff and casino floor supervisors.  Employers should immediately review their tip pooling policies to determine whether participants are limited to those who are “customarily and regularly” tipped directly by the customers.

The Ninth Circuit’s opinion is available here: http://cdn.ca9.uscourts.gov/datastore/opinions/2016/02/23/13-35765.pdf

Christina C. Tillman is a partner in the Fresno office of McCormick Barstow LLP. She represents small businesses and corporations in employment defense matters and provides in-house training on employment-related issues.  Ms. Tillman can be reached at (559) 433-1300.