Surly tip-pooling settlement has a ripple effect

Surly Brewing Company settled a tip-pooling lawsuit with servers and bartenders for $2.5 million.
Surly Brewing Company settled a tip-pooling lawsuit with servers and bartenders for $2.5 million.

Surly Brewing Company wasn’t the state’s first tip-pooling case. But it was a big case. A judge found that Surly shouldn’t have played any role in pooling server tips, and approved a $2.5 million settlement for 148 class action action members in March that sent checks of more than $10,000 to some servers.

The settlement has caught the attention of local servers and restaurant owners. Attorneys said they’re fielding more questions. Some restaurant workers said it’s encouraging more venues to sidestep table service altogether.

“The conversation has definitely changed about tip-pooling,” said Sarah Webster Norton, a vocal advocate for servers. “…Staff feels more empowered now to speak out if they don’t agree with the tip-pooling.”

Employers can almost never play a role in pooling servers’ tips, with a few narrow exceptions, explained Matt Frank, an attorney who represented Surly servers and bartenders. People who directly receive tips are not obligated to share them with indirect service employees like dishwashers and cooks.

Surly servers and bartenders placed their tips in envelopes and turned them over at the end of each shift for redistribution in paychecks, with a percentage going to staff like barbacks, hosts and food runners, court documents said. That meant more than $1 million was diverted to other employees over a period of nearly three years, Frank said, significantly bumping pay for non-tipped workers.

“It ends up amounting to a potentially significant savings for the company,” he said.

A Surly manual explained that tip-sharing was part of a “team mentality,” according to court documents.

“This is the reason we believe in tip pooling: we are a team, we will work together to be the best damn staff in town,” stated the manual.

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In a statement, Surly said its 2014 tipping system was created on the advice of many experts and industry leaders to create a fair system. No malice was intended, and no tips were retained by Surly, the company said.

Michaelann Gillis said she was one of the first people to speak to an attorney in the tip-pooling case. As a consistent top three contributor (an open book tallied every server’s sales) she felt the system didn’t work for her, and she ended up leaving. She was surprised at the size of the class action check.

“The hard part is that a good portion of it was money I would have tipped out anyway,” she said. “…Surly didn’t take a dime, they just distributed it improperly.”

Surly said a traditional tipping system is now in place.

A recurring issue

Minnesota tip-pooling cases date back at least 10 years. Cases include a $1.2 million settlement for 1,200 servers at Outback Steakhouse restaurants in 2011, and a 2013 ruling in favor of servers at Pinstripes.

The Trump administration floated an idea for new tip regulations last year to allow more tip-pooling with the back of the house. Revised federal Department of Labor standards now clarify that tips belong only to employees, and if tipped workers make at least minimum wage, they can pay into tip pools that benefit the back of the house.*

Minnesota law says employers cannot require workers to participate in such a tip pool, however.

Staff at the Minnesota Department of Labor and Industry said they aren’t seeing any particular trends in complaints related to tip pooling, tip credits and tip sharing. Annual complaints stood at 28 in 2013, 36 in 2015, 17 in 2017 and 13 to-date in 2018.

But Frank, the attorney on the Surly case, said his office at Nichols Kaster is answering more tip-pooling questions.

So is attorney Shawn Wanta, who said his office at Baillon Thome Jozwiak & Wanta is fielding more tip-pooling cases. He said the issue tends to pop up in newer restaurants with creative business models.

One case underway since late 2017 involves The Copper Hen Cakery, where servers allege that the restaurant unlawfully required them to share a portion of tips with other employees.

The Copper Hen owner did not respond for comment.

Restaurants search for a better system

Dan McElroy of the Minnesota Restaurant Association said he’s watching a movement toward fast-casual counter service, similar to Five Guys, Panera Bread and Punch Neapolitan Pizza.

Jason Dorweiler, the owner of Tori 44 in North Minneapolis, said he always thought that if he opened his own restaurant, he’d find a way to split the tips with the back of the house. But he learned his vision to provide table service and split the tips wouldn’t legally work. So he switched the business model from table service to counter service to aid tip sharing, he said.

“I wish things were different,” Dorweiler said. “…It’s been unfair for so long. I’ve been on both sides.  Mostly I’ve been cooking, but I switched for that reason to bartending and serving because I’m going to make a ton more money.”

The restaurant Fig + Farro recently ended tip-pooling practices.

The same is true at Common Roots at 26th & Lyndale, which previously used a system where employees voluntarily pooled tips with all staff. Owner Danny Schwartzman said they always ran the risk that one staffer wouldn’t like the system, and there wouldn’t be an easy way to fix it. They dropped tips altogether about a year ago, increasing prices and paying everyone at least $15.

“A lot of restaurants are relatively small operations that don’t have extensive back offices, and they’re trying to figure out how to do the right thing,” he said. “… Simple questions aren’t as simple as you think.”

Jennifer Schellenberg of Restaurant Workers of America, a group that advocates for preserving tip income, once alerted the Dept. of Labor to forced tip-pooling at a prior employer. The complaint led to a restaurant audit and checks for lost wages. But she thinks Surly had good intentions with its tip pool, she said. Surly has been an industry leader in many ways, she said, from the craft beer movement to state law changes.

“I’m hopeful that the takeaway for people can be that they made a mistake, and they paid for it,” she said.

See a guide to Minnesota law on tip-pooling. 

*Corrected to clarify the policy

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