Last week, a pair of federal inspectors with badges walked into Fuel Cafe, a brunch spot on Northeast Alberta Street that serves comfort food, and demanded to speak to the kitchen staff.
Mari Shelby, who bought the compact cafe in 2011 when it was still a coffee shop, thinks she knows who the complainers were: Three recent hires were threatening to leave en masse, demanding a change to the restaurant’s longtime policy of sharing tips with the “kitchen manager” and other back-of-house workers.
Now Shelby must spend thousands of dollars defending his business against what he says are baseless accusations: that supervisors are stealing tips.
“The kitchen manager,” he admits, did indeed take home the biggest share. But that was because he worked the most hours. He wasn’t salaried, and his title, he says, was purely for show. “Nobody reports to him,” Shelby says. “He doesn’t hire or fire.”
The investigation is just beginning, and the outcome is uncertain. But if it’s anything like what happened to Portland’s McMenamins and Pizzicato chains, it could mean bad press and, perhaps, a hefty fine.
On January 23, the U.S. Department of Labor sent a letter to employees of two McMenamins restaurants, informing them that their managers had illegally taken more than $800,000 in tips over a three-year period. The money was “passed on” to “assistant managers” and “assistant to assistant managers.” A week later, on January 30, the federal agency sued Pizzicato, alleging that the chain went further and tipped general managers as well.
Contacted by the press, representatives for McMenamins and Pizzicato expressed disbelief, saying they had no idea they were doing anything wrong.
Managers work hand in hand with front-line staff, explains Pizzicato founder Tracy Frankel. “We’ve always tipped everyone equally. We’ve done that for decades.”
Frankel’s confusion is perhaps understandable. For the past decade, all three branches of the federal government have been weighing the legality of tip pooling, disagreeing on everything from whether the pools are legal to who can participate in them.
Still, says Corinna Spencer-Scheurich, who directs the Northwest Workers’ Justice Project, companies should know better. “It’s tempting to employ tip pools to compensate your managers,” she says, “but that’s not right — and it’s not legal.”
The national battle over pooled tips has its roots in Oregon, which, unlike 43 other states, does not allow tips to count toward the minimum wage. (States that do and don’t typically fall along predictable party lines.) Because businesses don’t have to employ tips to pay servers, Oregon restaurateurs have long been tempted to employ the money to support wages elsewhere.
They often do this by pooling the day’s tips and then distributing them to employees based on hours worked. This practice benefits cooks and dishwashers, who typically don’t take tips. But it violates a fundamental assumption in the concept of tipping: that the money actually goes to the person to whom the tip is given.
In 2008, a waitress named Misty Cumbie sued a Northeast Portland coffee shop for the practice, taking the case all the way to the U.S. Court of Appeals for the 9th Circuit, where she was assisted by Lake Oswego attorney Jon Egan.
They lost, but it caught the attention of lawmakers. It set off a dizzying tussle among judges, federal bureaucrats and congressional lawmakers over when tip-pooling should be legal and who should be included.
Ultimately, officials in the Trump administration threatened to scrap the rules altogether, which effectively means businesses can do whatever they want with tips, even pocket them.
So Congress found a compromise: Pooling tips is fine, as long as everyone gets paid the minimum wage and managers are not counted in the pool.
But even that didn’t end the debate. “That’s as clear as mud,” Egan says, “because, well, who’s the manager?”
The U.S. Department of Labor developed clear guidelines in 2020 to clear up some confusion: A manager is any person who supervises employees and has significant influence over hiring or firing decisions.
Since then, the department has prosecuted a string of coffee shops in Louisville, Kentucky, an Italian restaurant in San Antonio and a Korean barbecue joint in Los Angeles — all for sharing tips with managers.
The crackdown is perhaps not surprising. “President Biden promised to be the most pro-worker, pro-union president in American history, and he has delivered on that promise,” notes a fact sheet posted on Biden’s website in September. His administration has recovered $690 million in stolen wages, it said.
But Jason Brandt, president of the Oregon Restaurant and Lodging Association, says the Department of Labor’s increased enforcement of tip-pooling rules is troubling. Distinguishing between managers and nonmanagerial workers is tough, especially when managers work alongside regular employees and their titles change from day to day. “In a lot of these operations, especially in the counter-service models, the people serving the guests are interchangeable,” Brandt says.
In 2022, a Pizzicato employee filed a complaint with the Oregon Bureau of Labor & Industries, alleging the chain was not in compliance. Nicholas Grover, who had worked for the chain since 2017, said store managers still received tips. He complained to his bosses but saw no benefits.
BOLI doesn’t enforce tip laws, so it referred him to the federal agency that does: the U.S. Department of Labor. Grover called the feds.
They investigated, and two years later, the agency confirmed Grover’s suspicions: His bosses were breaking the law. Pizzicato’s owners agreed to pay $570,000 in damages. Almost all of the money will be distributed to 367 employees who lost tips since 2020.
Felix Rippel, Pizzicato’s CEO, says Grover’s complaints never reached him. (The executive to whom Grover claims he complained, the chain’s longtime chief operating officer, was fired last year.)
Ultimately, Rippel felt cheated by regulators. He said he fully cooperated with the investigation, and when investigators informed him of the violations last summer, he immediately raised executives’ salaries and stopped funneling tips to them.
But federal prosecutors filed a lawsuit anyway, accusing him of employing “oppressive child labor” and failing to “maintain, preserve, and protect tip records.” (Rippel claims the company lost several weeks of records. Frankel, the owner, claims a manager accidentally sent a 17-year-old on a delivery a few weeks before his 18th birthday.)
Pizzicato never set out to “steal” tips, Rippel says. “We just felt it was the most egalitarian thing to do. We got kicked out on top.” The lawsuit was dropped two days later after a settlement.
Grover, who was promoted to manager in 2021, says he doesn’t begrudge his managers extra money. They often worked harder than anyone else, he says. The problem, he explains, is that companies underpay managers and employ tips to make up the difference. He left Pizzicato in 2022 after getting a novel job driving buses.
Margins in the restaurant industry are notoriously low, and owners say they can’t afford to pay workers more. The Labor Department initially sought $2 million in back wages and damages, Rippel says. That amount, he says, “would have bankrupted us.”
Shelby, owner of Fuel Cafe, agrees. She has been in the restaurant business for 25 years but has been let down by novel taxes, aggressive regulators and rising labor costs.
“Workers think they’re entitled to everything,” he says. “Petite business in America isn’t what it used to be.”
