As medicinal and recreational cannabis are legalized in many states across the United States, cannabis industry employers should be carefully attuned to wage and hour compliance for their employees. Indeed, as recent litigation against cannabis retail operations indicates, even the simple practice of putting out a “tip jar” can pose risks, making it critical to structure tip pooling and distribution in a lawful manner.
Under the Fair Labor Standards Act (“FLSA”), “tipped employees” are those who customarily and regularly receive more than $30 per month in tips. Tips are considered the property of tipped employees, and the FLSA prohibits any arrangement by which tips revert to or become the property of the employer. However, employers may be permitted in certain circumstances to use tips as a credit against its FLSA minimum wage obligations. Employers may also use tips to establish a valid tip pool.
In 2018, the Consolidated Appropriations Act (“CAA”) added the following language to the FLSA: “An employer may not keep tips received by its employees for any purposes, including allowing managers or supervisors to keep any portion of employees’ tips, regardless of whether or not the employer takes a tip credit.” Accordingly, the FLSA, as amended by the CAA, prohibits management and supervisory employees from sharing in a tip pool or similar arrangement.
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