Federal View Of Chauffeur Tips Favors Limo Industry Practices

Posted on December 12, 2012

WASHINGTON, D.C. — Limousine operators will not be subject to paying overtime on invoiced chauffeur tips as long as the payments are optional and customers are told they are discretionary, according to recent guidelines from federal labor officials.

The guidelines were outlined in a letter to the National Limousine Association from the Wage and Hour Division of the U.S. Department of Labor, dated Nov. 16. The NLA released the contents of the letter on Tuesday to its membership.

The guidelines make a critical distinction between “discretionary” and “compulsory” gratuities.

  • Discretionary gratuities: Not subject to overtime
  • Compulsory gratuities: Subject to overtime

According to the NLA: “The DOL’s letter for the first time confirms that the DOL will not take the inflexible approach that invoiced gratuities can never be tips. Instead, the DOL has adopted an “it depends” approach, giving operators guidance as to the factors that will indicate whether an invoiced gratuity constitutes a tip versus an imposed charge.”

The NLA states: “Specifically, the letter begins by reciting the federal regulations confirming that the hallmark of a tip is customer discretion: Whether a tip is to be given, and its amount, are matters determined solely by the customer . . . 29 CFR 531.52. A mandatory service charge or “imposed gratuity” is not a tip. See 29 CFR § 531.55 (“a compulsory service charge . . . imposed on a customer by an employer’s establishment, is not a tip . . .”); see also DOL Opinion Letter FLSA 2005-31 (a chauffeured transportation company’s “imposed gratuity” of 15% was not a tip).”

NLA board director and Dav El CEO Scott Solombrino called the DOL decision the biggest development for the NLA since it was formed in 1985.

“This is the largest single success story in the history of the association,” Solombrino said. “It would have affected 6,000 operators across the country immediately had it gone the other way. It took a lot of hard work by the NLA legislative committee, by our lobbyist and by our legal team to have a successful outcome.”

Solombrino, who co-chairs the legislative committee with board director Richard Kane, said the process began two years ago with the NLA’s lobbyists Louie Perry and Greg McDonald of the firm, Cornerstone Government Affairs, working with Congressional representatives to get the Department of Labor to pay attention to the matter.

“Because of the hard work of our lobbying firm, Cornerstone, we were able to apply tremendous Congressional influence to the DOL to take the time to do the in-depth analysis of current administrative rules and get them reinterpreted based on the fact pattern we presented to them," he said. "Without Cornerstone’s help, it would not have been possible because the DOL was already making a preconceived decision on this. For operators, this is an enormous advantage to avoid being under the scrutiny of the DOL if you follow NLA lawyers’ recommendations and also speak with your own legal counsel to confirm those recommendations.”

Cornerstone was instrumental in getting a bipartisan heavyweight list of politicians involved on this issue on behalf of the NLA and by extension the chauffeured transportation industry: Sens. Jean Shaheen, D-N.H., Kirsten Gillibrand, D-N.Y., Michael Enzi, R-WY, John Kerry, D-MA., Johnny Isakson, R-GA, and Pat Toomey, R-PA. On the House side, Reps. Carolyn McCarthy, D-N.Y. and John Kline, R-MN helped on the matter.

For the limousine industry, the decision affirms the standard industry practice of listing an optional gratuity on chauffeured service invoices. The practice is essential to maintaining gratuities for chauffeurs and convenient billing for those frequent business travel clients whose employers/companies pre-arrange and pre-pay for their chauffeured transportation many times in a year. Otherwise, frequent travelers would have to carry wads of cash and/or hassle with stopping at ATMs to get tip money for multiple chauffeured trips in a day or week. Or just forgo tips altogether, which would reduce the income of chauffeurs who often work early morning hours and late nights taking clients to and from airports, hotels and homes.

“I would call this a success as we have fairly clear guidance from DOL on what constitutes a tip and how you present that to the customer,” NLA President Diane Forgy told LCT. “It is definitely up to the operators to review with their legal counsel and adjust accordingly.”

The guidelines bring widespread relief to chauffeured transportation operators who had become increasingly worried that the gratuities earned by chauffeurs would be subject to the hassles and paperwork associated with overtime calculation, not to mention the chilling effect of not being able to pass through voluntary gratuities from the client to the chauffeur.

The defining legal/policy nugget in this matter turns out to be a favorable 1996 opinion letter from the Wage and Hour Division (WL 1031781), also known as the “Country Club Exemption,” cited in a Q&A explainer from the NLA. It states that the original letter: “establishes that the mere addition of a percentage tip charge on a customer’s bill does not necessarily mean that the charge is imposed and mandatory. What matters is whether the customer has discretion over whether to pay the tip and in what amount. The factors that can help establish such discretion include:

Whether the customer and/or rider are expressly informed that the payment is optional and may be increased or decreased at their discretion:

  • Whether the customer has discretion to pay whatever amount the customer deems appropriate, if any, based on the quality of service provided; and
  • Whether customers do in fact exercise discretion, sometimes paying different amounts than appear on the invoice.

The DOL guidelines resulted from two years of correspondence, lobbying and meetings between NLA leaders and federal labor department officials.In addition to Solombrino and Kane, board director Dawson Rutter, Forgy, and attorneys NLA attorneys Peter J. Moser and Michael Morrone were on the forefront of this issue.

“This is the best possible outcome we could have had from the Department of Labor,” said Rutter, CEO of Commonwealth Worldwide in Boston on Wednesday. “They’ve given us as clear an indication as possible on what they believed we may fall in to under the specific fact pattern of the country club exemption.”

Rutter won two overtime/tip related lawsuits earlier this year that were litigated in New York Superior Court. In both cases, Commonwealth’s gratuity policies were found to be clearly discretionary.

“We’ve got a lot of weight behind us now,” Rutter said of the limousine industry. “We have two court cases and the DOL has not put their imprimatur on our fact pattern.”

While the decision comes too late for operators who already have been audited and penalized, everyone else now has an opportunity to make sure they comply with the guidelines going forward, Rutter said. “If everyone paid attention to this and goes to their professional wage and hour attorney to set up their companies properly, then it can be an issue that is well behind us.”

Rutter cautioned operators to be careful on how they speak of their gratuities, and not refer to them as mandatory. “You can’t look like you are charging a mandatory tip even if it is discretionary,” Rutter said. “You have to put it out there as discretionary in every manner, shape and form. It’s all about semantics and how you talk about it.”

[NLA Q&A Gratuities Advisory Here]

— Martin Romjue, LCT editor

Related Topics: chauffeur gratuities, Dawson Rutter, Diane Forgy, DOL issues. Department of Labor, employee wages, labor laws, National Limousine Association, NLA board of directors, wage lawsuits

Comments ( 2 )
  • konstantin

     | about 2 years ago

    Yeah, of course operators are happy. Not only do they not have to pay drivers overtime on tips, but now they dont even have to pay them the tips. Hurray Capitalism. Another example of how broken and corrupt the system is toward those who own the means of production and can afford lobbyists.

  • See all comments
More Stories