New Labor Department Proposal Could Cause Increased Wage Theft, Inequality

By Maggie Harden 2-28-2018

A controversial Department of Labor proposal could cost service workers billions of dollars in tips, experts say — and female service workers would be hit the hardest. The proposal has met harsh criticism, and earlier this month, the agency’s inspector general announced his office is reviewing allegations that Labor officials buried unfavorable economic analyses of the plan.

“The Trump administration’s proposed tip rule would give employers overwhelming power and leverage over their employees,” California Rep. Mark Takano, the top Democrat on the House Subcommittee on Workforce Protections, said. “For female employees and minority workers – who already suffer from wage inequality – losing control over the tips they earn would open yet another avenue for unequal treatment and exploitation.”

The proposed rule would essentially make all tips given to service employees that exceed a federal minimum wage the property of the employer — who could then pool and distribute among all staff. The Labor Department says the rule would equalize workers’ wages by evenly distributing tips among wait staff and kitchen workers, but some economists and workers’ rights advocates say the rule would likely lead to increased wage theft and could worsen gender inequality. The left-leaning Economic Policy Institute estimates these losses at $5.8 billion – 80 percent of which would be lost by women because they comprise the majority of tipped workers.

"Tipped workers are more likely to be women, so I’m particularly concerned about how this proposal will affect working families, which are increasingly led by women," Rep. Suzanne Bonamici (D-Ore.) said. "Women working in service industries, sometimes working multiple jobs just to get by, deserve to earn a fair wage for their hard work.”

A study by restaurant worker advocacy group ROC United found that female restaurant employees also face systemic gender discrimination within the industry, which also contributes to lower wages. Full-time, year-round female servers are paid, on average, 68 percent of what their male counterparts are paid, according to the study.

“Women working as tipped employees already make less than their male counterparts, and, like all tipped workers, have higher rates of poverty and fewer workplace benefits,” Virginia Rep. Bobby Scott, the top Democrat on the Committee on Education and the Workforce, said. “This harmful rule will only make it harder for these women to make ends meet.”

The proposal, made in December, would reverse an Obama-era regulation that restricted tip pooling to only front-of-the-house workers such as servers, hosts and bartenders. Some legal experts, including National Restaurant Association lawyer Paul DeCamp, who was a senior Labor Department official under President George W. Bush, say the Obama-era rule directly violates a 2010 statute that says tip-pooling regulations only apply when an employer does not pay the federal minimum wage.

Under the Trump administration’s proposed rule, if service employees make the federal minimum wage of $7.25 an hour, then tips would become the property of the employer. The employer would theoretically distribute those tips among all employees – including back-of-the-house workers who don’t typically earn tips, such as dishwashers and cooks. However, opponents point out this change could give employers the opportunity to keep the tips.

“It’s really hard to figure out whether your employees made the minimum wage by hour,” ROC United spokeswoman Ramirez said. “What we’re saying is that you already have an industry where even the most well-intentioned employers still have difficulty following the law, and there’s still wage theft. What makes you think this new rule isn’t going to make it worse?”

Reports surfaced earlier this month alleging that the Labor Department knew about potential wage loss, but buried internal studies showing the economic hit tipped workers might take if the rule is approved. The Labor Department’s report on the plan said the agency is “unable to quantify” how the rule would affect tipped wages, which the Office of Inspector General has said is a potential legal violation of the rulemaking process and ordered an audit to review the proposal. A senior Labor Department official said that the audit is unlikely to be completed quickly because investigations are time-consuming.

Others, however, say the Labor Department has properly fulfilled its obligation to estimate the effects of its proposals.

“Certainly the department has met that burden,” DeCamp said. “One of the things the department did not do is try to calculate to the penny exactly what the effects of the regulation are going to be, and the department was very candid that trying to quantify the effects of this regulation would require making judgments about a lot of factors that are pretty unpredictable.”

Thea Bryan, a member of ROC United and a Washington-area bartender for the last 15 years, said that the wage loss this rule could cause would be devastating for her. Bryan, a single mother putting herself through graduate school, is required to work internships during the day as part of her education – many of which are unpaid. She has worked in the restaurant industry intermittently throughout her working life because it’s the only industry that’s flexible enough to fit her schedule and because of the extra incentive of tip money.

“I don’t know how I would support myself [under this proposal],” Bryan said. “I depend on those tips to make ends meet.”

Maggie Harden is a sophomore at Northwestern University majoring in studying journalism and political science. She is reporting on living and infrastructure for the Medill News Service. On campus, she is a managing editor and writer for North by Northwestern.

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