On March 24, 2026, the Western District of Texas handed down a $21 million judgment against defendant Perry’s Restaurants. The case, Paschal et al. v. Perry’s Restaurants Ltd. et al, serves as a stark reminder that missteps in tip pool compliance can strip employers of the tip credit, double damages exposure, and impose liability that reaches individual owners.

Overview of FLSA Tipping Rules and the Tip Credit

Under the Fair Labor Standards Act (“FLSA”), employers are permitted to pay tipped workers as little as $2.13 per hour—far below the federal minimum wage of $7.25—on the assumption that tips will make up the difference. This is known as the “tip credit.” In exchange for these cost savings, employers must follow certain strict rules governing the treatment of employee tips. Certain of these rules govern tip pool arrangements.

Generally speaking, a tip pool is a system where a percentage of tips received by employees are collected and redistributed among a group of workers. Some employers require participation in tip pools while others make it optional.

Under the FLSA, if an employer takes a tip credit, then a mandatory tip pool can only include employees who “customarily and regularly receive tips”. Determining whether an employee “customarily and regularly receives tips” requires examining the extent to which the employee engages with customers. An employer that requires tipped employees—who are already earning well below minimum wage in base pay—to share their tips...

Read Full Story: https://news.google.com/rss/articles/CBMigwFBVV95cUxPUDgyNXh1aGd3TkdVTDhiZXM2...