Restaurateurs and other hospitality business operators this week were wrestling with how to proceed in the wake of a federal appeals court ruling Tuesday on tip pooling.

In a 2-1 decision, the San Francisco-based U.S. Ninth Circuit Court of Appeals upheld a 2011 U.S. Labor Department rule that businesses cannot share tips given to waiters, casino dealers and other service staff with the support staff such as dishwashers and table runners, even if the tipped employees are paid minimum wage.

“We did not expect this ruling, and we’re still consulting with our litigation partners on how we will respond,” Anthony Anton, president and CEO of the Seattle-based Washington Restaurant Association, said in a statement posted on the group’s website. “We will inform our members when we have chosen a course of action.”

The Ninth Circuit Court, in overturning rulings by district courts in Nevada and Oregon, ruled that the Labor Department regulation was reasonable and consistent with Congress's goal of ensuring that tips stayed with the employees who receive them.

The ruling generally applies in states that require workers be paid the minimum wage on top of any tips. In this case, the seven states are: Alaska, California, Minnesota, Montana, Nevada, Oregon and Washington.

In Las Vegas, the decade-old tip pooling program at Wynn Resorts' Las Vegas properties was still alive this week, the Las Vegas Review Journal reported.

The Circuit Court ruling sent the Las Vegas case, originally filed in 2009 in U.S. District Court, back to the lower court. Wynn can appeal to the entire Ninth U.S. Circuit Court or to the U.S. Supreme Court. A Wynn company spokesman, Michael Weaver, told the Las Vegas Review Journal that attorneys were "studying our potential next steps."

Paul Schlienz, communications manager for the Seattle-based Washington Restaurant Association, posted advice on the organization’s website to update members on what to do next.

“From a practical standpoint, changing the tip pool now to address this ruling will require a lot of administrative issues, changes to compensation structure, impact employee morale, and create other challenges,” Schlienz wrote. “This is a big change, and you may end up changing back to your current model if the 9th Circuit then changes its ruling, if a request for review is made and granted.”

Schlienz said member faced some legal risk if they did not change the tip pool policies. “These risks may be lessened, however, while a request for reconsideration or appeal is pending,” he wrote. “We are working with our legal counsel to better understand the scope of these risks depending on next steps.”

He said possible options include petitioning to have the case reconsidered by the panel that made this decision, petitioning to have the entire Ninth Circuit court hear the case, or appealing the decision to the U.S. Supreme Court.

Contact Ron Ruggless at ronald.ruggless@penton.com.
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