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Is Sharing Tips Illegal in Minnesota?

Do Your Employees Share Tips? 

Minnesota Supreme Court Finds the Minnesota Fair Labor Standards Act Contains Myriad Exceptions to Employment At-Will.

The Minnesota Supreme Court decision in Burt v. Rackner, Inc., A15-2045 (Minn. October 11, 2017) just put a spotlight on tip pooling in Minnesota under the Minnesota Fair Labor Standards Act (“MNFLSA”), and in doing so created several more exceptions to Minnesota’s employment-at-will doctrine (meaning employers can terminate at-will employees at any time for any lawful reason).

In this case, Rackner employed Burt as a bartender from January 2007 to July 2014. Burt alleged that at some point before he was fired his employer told him “that he needed to give more of his tips to the bussers, and that there would be consequences if that did not happen.” Burt refused to share his tips.  As a result, Burt was fired and in December of 2014 he brought a lawsuit against his former employer alleging “he was being terminated because [he] was not properly sharing his tips with other staff.”  The employer argued the law did not provide Burt with the ability to sue them for wrongful discharge under this provision of MNFLSA. The Court disagreed saying the law gives Burt this right and that he was entitled to proceed with a wrongful discharge claim against his former employer.

So what does this mean and why should we care?  There are three very important things for employers to take away from this.

First, Minnesota employers in the hospitality industry often allow certain employees to pool their tips and then divide such tips amongst themselves at the end of their shift.  Quite frankly, there is nothing wrong with this practice so long as the choice to pool and share tips belongs to the employee.  This practice becomes unlawful, however, when an employer usurps the employee’s decision and requires employees to pool and share tips. “No employer may require an employee to contribute or share a gratuity.” Minn. Stat. § 177.24, subd. 3 (emphasis added).  The provision also states that although an employee may voluntarily agree to share gratuities, the agreement “must be made by the employees without employer coercion or participation.”

Second, and the core issue in this case, is that although Minnesota is an employment at-will state, the Court decided the MNFLSA allowed Burt the ability to sue his employer for their decision to terminate him for refusing to share tips. This decisions serves not only as a warning for how to handle employees who share tips, but also as a reminder that there are a number of exceptions to employment at-will.  In other words, there are several ways employees can claim wrongful discharge or retaliation against an employer who decides to terminate their employment. In fact, the decision reads like an essay of existing employee protections against wrongful discharge and is worth the time to read through and understand. Employers are reminded, therefore, to not rely solely on employment at-will but to also have legitimate, non-discriminatory and non-retaliatory reasons for their actions.

Third, and most important, the Court’s reasoning did not simply create one more exception to employment at-will in the context of terminating an employee for refusing to tip pool.  Rather, the decision is much more broad.  As the dissent noted, the Court likely created a cause of action for wrongful discharge for every prohibited employment practice under MNFLSA, thereby adding numerous more exceptions to employment at-will in Minnesota. Simply put, this is an expansion that will most certainly result in increased employment litigation.

Employers with questions regarding the above Court decision, wrongful termination, employment at-will or any other employment law related matter can contact Attorney Chad A. Staul at cstaul@rinkenoonan.com or (320) 656-3515.

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