U.S. 9th Circuit Court of Appeals

Shan Li
February 24, 2016

A court ruling is pushing California restaurant owners to rethink how to pay employees.

The 2-1 decision from the 9th Circuit Court of Appeals bars businesses from sharing tips given to waiters, bartenders and other staff with back-of-house employees such as dishwashers and cooks. It applies mostly to states such as California where workers are paid the minimum wage on top of any tips.

In the Golden State, the ruling may not have an immediate impact, experts said. Most restaurants don’t share tips with kitchen staff because it’s a legal gray area in the state, said Jot Condie, chief executive of the California Restaurant Assn.

But the court’s decision, released Tuesday, is feeding the discussion over how restaurants and other service businesses, such as Las Vegas casinos, should compensate employees, experts said. Such businesses already are dealing with higher minimum wages in many cities and the added costs of the Affordable Care Act.

“It’s probably on the front of every restaurateur’s mind,” Condie said. “Wages have gone up so fast.”

The 9th Circuit decision upheld a 2011 U.S. Department of Labor rule, which the court said was consistent with Congress’ intent that tips stay with the employees who receive them.

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