Litigation costs of even a successful defense of a Fair Labor Standards Act case can be tens of thousands of dollars. Damages in an unsuccessful case include the wages found to be owed, liquidated damages in the same amount, plus attorney fees and costs, and can be crippling. Furthermore, settlement of an FLSA claim is effective only if approved by a federal court or the U.S. Department of Labor, which can invite further inquiry into an employer’s wage and tax practices.

Tip sharing and tip pooling long have been a part of wage-and-hour law concerns for those in the hospitality industry. Their use derives mainly from a credit (the tip credit) employers may take against their minimum wage obligations. Given this lengthy history, it might be assumed that the law is well understood and applied properly. A 2008 class action award against Starbucks in excess of $100 million arising out of a tip-pool arrangement suggests otherwise.

Minimum Wage and Tip Credits

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