Generally, the Fair Labor Standards Act (FLSA) requires employers to pay at least minimum wage (currently $7.25) for all non-overtime hours in a workweek. However, subject to any contradictory state laws, an employer may pay a “tipped employee” – one who customarily and regularly receives at least $30 per month in tips – a reduced minimum wage of $2.13 per hour, with the employee’s tips making up the difference. This difference commonly is known as the “tip credit.” But to claim the tip credit, the employer must comply with certain notice requirements, and failure to do so may result in a claim that the employer violated the FLSA by not paying the required minimum wage. A recent case involving a Houston, Texas pizza parlor exemplifies the potential perils of failing to satisfy those tip credit notice provisions, as well as for overcharging employees for the cost of uniform cleaning. Ettorre v. Russos Westheimer, Inc., 2022 U.S. App. LEXIS 7295 (5th Cir. Mar. 18, 2022). The Fifth Circuit has jurisdiction over the federal courts in Louisiana, Mississippi, and Texas.

The Law

When an employer elects to take a tip credit under the FLSA, it must inform tipped employees of its use of the tip credit, including (1) the amount of the employee’s cash wage; (2) the amount of the tip credit claimed by the employer; (3) that the amount claimed may not exceed the value of the tips actually received; (4) that all tips received must be retained by the employee except for a tip pooling...

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