Tip Pooling and the Battle for Equitable Pay in Restaurants

San Francisco Chronicle

Joe Hargrave thought that he’d come up with a straightforward way to make sure that, on a busy night, his entire staff at the Valencia Street location of Tacolicious earned a fair share of the night’s earnings.

At Tacolicious, as at most restaurants, waiters and bartenders, who receive tips, rake in much more money than the cooks and kitchen staff, who rely on an hourly wage. To spread the money more equitably, the staff pools tips at the end of the night, which are then distributed according to a point system that everyone on staff understands. Waiters and bartenders still receive the biggest chunk, by far, followed by bussers and hosts. A small share then gets distributed among the kitchen staff — each cook may get $60 a week. “To the server, that doesn’t mean much, but to a line cook that means a lot,” Hargrave says.

His system has appeared to be legal, as far as the state and federal governments defined the law. But now, thanks to a February decision from the Ninth Circuit Court of Appeals — on a point so arcane that it probably wouldn’t apply one whit to Tacolicious — Hargrave and other cautious restaurateurs who employ similar tip-sharing systems are scrambling to change how they pay workers to ensure they don’t get sued.

Welcome to the debate around tip sharing, the latest flash point in the critical discussion the restaurant industry is having around its flawed labor system.

In the Bay Area, where restaurants are booming and minimum wages are quickly rising, a waiter can make $60 an hour on a night when the grill cook makes $15. “It’s a working system that’s broken,” says Stuart Brioza of State Bird Provisions and the Progress in San Francisco.

Over the past 18 months, many local restaurateurs have been testing new ways to unbreak the system, such as introducing an automatic gratuity charge or making menu prices service-inclusive — two methods that give business owners legal control over the money they bring in and distribute to staff. But those strategies result in much higher taxes, and restaurateurs are terrified diners won’t take to no-tipping models.

Tip sharing, however, offers a tantalizing possibility: a way to, well, disrupt the system and bring some equity to staff pay, without diners even noticing.

The problem is that the legislation regulating the practice is so ambiguous that some Bay Area business owners avoid it entirely. Others shrug and hope for the best.

Tip pooling is a common restaurant practice in which the entire team of servers combines tips and shares them with other staff in the direct chain of service, like fellow servers, bussers and bartenders. This is legal in all 50 states — provided that management claims no part of the pool.

At Trestle in San Francisco, which pools tips among the waitstaff, server David Lapeyrouse says the practice fosters a sense of teamwork, not to mention better service for the diner. “You have a responsibility to a section but don’t own the tables,” he says. “They’re everybody’s responsibility.” The money is more consistent, too, because a couple of low tippers don’t throw off that night’s wages.

In Canada, where Lapeyrouse grew up, it was common to tip out the cooks and dishwashers, too. Here in America, he says, “I think it’s weird that they don’t, but it’s against the law.”

What he’s referring to is that non-tipped employees — essentially cooks and dishwashers — are prohibited from participating in tip-pooling schemes in 43 states. Those states have one minimum wage for non-tipped employees and another, much-lower one for tipped employees (servers, bartenders, bussers and hosts, who make up that wage difference through tips).

Here’s where it gets complicated: The other seven states, including California, have a universal minimum wage for all hourly employees, tipped or no. In a 2010 decision (Cumbie vs. Woody Woo Inc.), the U.S. Ninth Circuit Court of Appeals appeared to decree that in these seven states, restaurants had the right to share tips with people not in the customary chain of service, such as cooks. After that decision, the U.S. Department of Labor announced that it would not enforce its tip-sharing prohibitions in the applicable states. So did the California Labor Commissioner’s Office.

Even though legislators didn’t follow up on that decision by passing laws that explicitly permit tip sharing, in the absence of clear guidelines, numerous Bay Area restaurants have found ways to extend tips to cooks and dishwashers.

Some justify the move by bringing cooks into direct contact with diners. Thomas McNaughton, executive chef at the Ne Timeas Restaurant Group, which runs Flour + Water and Aatxe in San Francisco, says that cooks at most of the group’s restaurants take plates out to tables. The practice is not 100 percent perfect, he admits — a sweaty, shy cook isn’t the most polished server — but it makes sense for the business. “Cooks run food because it helps service,” he says. “It gets the food out faster, and our guests enjoy it.”

Stuart Brioza and Nicole Krasinski designed the workflow at State Bird Provisions after recognizing that sushi chefs provide service while preparing food and receive tips — a practice that has been defended, successfully, in court. At State Bird, cooks serve the diners who sit at the counter overlooking the kitchen, run plates out to the tables, explain dishes to customers and even take wine classes so they can help sell beverages.

“On a busy night, why shouldn’t there be some monetary gain for everyone?” Brioza asks. The setup means the couple must conduct additional training with cooks, but his staff reaps the benefits with pay closer to a proper living wage. “It’s a pretty significant part of their salary,” he says.

Restaurateurs are under increasing pressure to do something. As the minimum wage in seven Bay Area cities climbs, making its way to $15 an hour, wages keep rising, and menu prices increase to compensate. There’s a truism in the restaurant industry, says Brioza: “As you raise your prices you give your waiters a raise.”

For most of us, when a $100 check becomes a $110 check, our tip goes up 10 percent as well. As tips rise, the current system’s wage disparity threatens to get more severe, too.

Talking to the press about tip sharing makes restaurant owners who are normally voluble start picking words with care and admit to being nervous — not because they believe they’re doing anything wrong, but because the government won’t tell them exactly what “right” is. After all, high-profile New York restaurant owners like Mario Batali and Tom Colicchio have been embroiled in massive lawsuits over tip pooling, and the lawsuits filed recently against Bay Area chef Michael Chiarello involved a charge that his restaurants illegally pool tips (among other allegations).

Because of the unclear laws, many restaurants have not instituted an official tip-sharing policy.

Just as Ne Timeas has, Sharon Ardiana takes an informal approach at Ragazza in San Francisco, opting to create a culture in which waiters pool tips and voluntarily share them with cooks — although once the servers declare how they’ve distributed their tips, she has to log the amount so that each employee is taxed appropriately. (At Ragazza’s sister restaurant, Gialina, the cooks’ wages are augmented with tips from the restaurant’s sizable takeout business.)

Adding to the confusion is the latest wrinkle: the February decision, in which the Ninth Circuit Court of Appeals passed judgment on an Oregon court case involving tip sharing.

According to Robert Fried, senior partner at Atkinson, Andelson, Loya, Ruud & Romo, the question argued before the court was quite narrow. The Department of Labor has continued to publish rules defining cooks and dishwashers as outside the chain of service, making them ineligible for tip sharing. The Oregon Restaurant Association was testing to see whether those rules applied in the state. The court said yes.

At first glance, says Fried, the decision has no impact in California because it centered on Oregon’s tip credit, which allows tips to be credited toward a guaranteed minimum wage. California doesn’t allow for a tip credit. But by ruling that cooks and dishwashers are outside the chain of service — and thus ineligible for tips — the decision made a gray area even more obscure. And that is making restaurateurs scared.

That slight increase in risk, says Tacolicious’ Hargrave, was all it took for his financial consultant to instruct him to stop sharing tips with the kitchen and simply raise their wages instead. Raising wages, though, means raising prices — and he frets over how much he can raise the price of a taco. “I don’t know who this law protects,” he says, exasperated. “That’s the worst part about it.”

Tacolicious is not the only restaurant scrambling to respond to the new ruling. Jay Porter, owner of Salsipuedes in Oakland, had previously put in place a similar tip-sharing strategy in order to pay his staff equitably. Then the Ninth Circuit Court of Appeals court decision came out, and after consulting with lawyers, he instituted a 20 percent service charge.

“The law is super retrograde,” Porter says. “But if the result is that you have to spend a bunch of time getting involved in the intricacies of defending our tip pool, it’s not worth it. We want to focus on serving great food and drink.”

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