The Fair Labor Standards Act does not prohibit employers from allocating tips under a tip pool, if the employer does not apply a "tip credit" to satisfy the minimum wage obligation.
The Fair Labor Standards Act permits payment of a sub-minimum wage to tipped workers, so long as the base subminimum wage plus tips exceeds the normal minimum wage.
The plaintiffs claimed that the employer's allocation of pooled tips violated the Fair Labor Standards Act. They raised a number of arguments regarding the validity of the tip pooling arrangement, under which 55-70% of tips were distributed to kitchen and dishwashing staff. But the court said the FLSA does not prohibit tip allocations where the employee earns full minimum wage before tips. When an employer does pay subminimum wage and relies on tips to fill the gap, however, there are restrictions on tip pooling under FLSA (29 U.S.C. s. 203(m)). But those did not apply in this instance.
California law, however, does not permit the subminimum wage. Neither does Oregon law, which is where this case arose. Therefore, employers complying with state law minimum wages will not have to worry about the FLSA when constructing tip pools.
The case is Cumbie v. Woody Woo, Inc. and the opinion is here.