Sachin S. Pandya is Professor of Law at the University of Connecticut.
When does paying workers via tips count as illegal employment discrimination? Arguments against tip compensation–around for a while (e.g., Scott, 1916)—re-emerged last month (e.g., here and here) after restauranteur Danny Meyer (like some others) decided to ban tipping and raise prices instead. One of these anti-tipping arguments: Customers of all races tend to tip black restaurant servers far less than white restaurant servers, even after controlling for service quality (Lynn et al. 2008; Brewster & Lynn, 2014). In turn, some (e.g., Lynn et al., 2008, p. 1057-58) suggest that such a race disparity in tips exposes employers to Title VII disparate-impact liability. That liability applies if a defendant-employer “uses a particular employment practice that causes a disparate impact on the basis of” race or sex, among other characteristics, 42 U.S.C. § 2000e-2(k)(1)(A)(i), regardless of “the employer’s motives and whether or not he has employed the same practice in the past,” Lewis v. City of Chicago, 560 U.S. 205, 217 (2010).
So, can a race disparity caused by tip compensation amount to Title VII disparate impact liability? There isn’t much litigation on this issue, but the answer is yes, if we treat tips just like bonuses, commissions, and other kinds of compensation practices used to pay an amount on top of base pay—practices that, according to the EEOC (Title VII’s federal agency enforcer), may generate disparate-impact liability. EEOC Compliance Manual § 10(III)(C)(2).
Although Wang (2014, p. 157-58) doubts it, it’s pretty easy to conclude that a race disparity in tips is caused by the employer’s use of a “particular employment practice.” But for tip compensation, there can’t be a tip disparity. Sure, employers don’t control how much their customers tip. But employers do decide whether part of a worker’s pay comes from tips, instead of, say, imposing a flat service charge. Besides, customer race bias can’t excuse an employer’s legal responsibility for causing a race disparity in tips. In general, Title VII does not excuse employers who defer to their customers’ racial preferences.
Wang also suggests that a court might treat a disparate-impact challenge to tip compensation—which partly leaves worker pay to customer discretion—like the challenged policy upheld in Wal-Mart Stores v. Dukes, 131 S. Ct. 2541, 2554-57 (2011), which left worker pay and promotion to local store managers’ discretion. But Wal-Mart—a class action lawsuit—mostly turned on an issue of federal class action procedure. See, e.g., Gschwind v. Heiden, 692 F.3d 844, 848 (7th Cir. 2012); Tabor v. Hilti, Inc., 703 F.3d 1206, 1221-22 & n. 8 (10th Cir. 2013). So, Wal-Mart might matter in a Title VII disparate-impact class action filed in federal court against a restaurant chain that lets each restaurant’s local manager decide whether to adopt tip compensation there. But Wal-Mart doesn’t stop a court from saying that an employer who adopts tip compensation thereby “uses a particular employment practice” under Title VII. Continue reading