McMenamins tip pool spurs scandal

The McMenamins are no strangers to the spotlight, nor to interrogation. A year after their 40th anniversary and a ransomware attack, the family-owned chain of historically-renovated dining and entertainment establishments is once again at the center of controversy. The U.S. Department of Labor (DOL) has accused the company of mismanaging $800,000 of tip money. In a public statement quoted in Eater, McMenamins did not deny the charge, expressing a belief that they complied with Oregon law when creating tip pool structures. 

“We’ve always complied with Oregon law and fully distributed the tip pool to eligible employees,” their statement said. “This includes our assistant and assistant-assistant managers, who work alongside other front-of-house employees to ensure our guests have a great experience. As hourly, entry-level, non-exempt positions, they’re entitled to overtime and a portion of the tip pool; it’s both legal and appropriate.”

Tip money, and tip pools in particular, have a long legal history in Oregon. Several civil action lawsuits have shaped Oregon’s approach to tip delegation and sparked larger national conversations about how tips are collected and distributed.  As such, McMenamins may find themselves becoming a site of further litigation, as the DOL cannot demand that the company reimburse their employees for the misdirected funds. 

In cafes and restaurants across the country, tip pooling is not uncommon. In fact, as a response to inflation, increased concern over low-wage worker’s rights and outdated wages and benefits practices for service workers, tip pooling has increased in popularity. The practice typically entails gathering all the tips given to an establishment and dividing them among employees according to hours worked. 

Some businesses may employ a more complex system of reimbursement that considers labor intensity and varying wages. This system typically benefits cooks, dishwashers and other back-of-house staff. However, it puts the classic philosophy of tipping in response to a particular employee’s good service in question. This philosophy continues to impact serving culture across America, especially as more of the public becomes aware of tip pooling.

For Oregonian business owners, the practice of tip pooling is particularly enticing because tips do not count toward the minimum wage statewide. Restaurants, then, are not legally required to use tips to pay their waitstaff and can use them, instead, to avoid giving raises, salaries or benefits while continuing to compensate employees. 

Server Misty Cumbie sued a Northeast Portland cafe in 2008 for their practice of pooling tips which increased pay for back-of-house employees while leaving servers under-compensated, according to an interview with Wiser Waitress. Her case made its way to the 9th U.S. Circuit Court of Appeals, where it lost but still sparked policy action.

The resulting legislation declared that businesses can pool tips as long as everyone is paid at least the minimum wage, and managers cannot be included. Anyone who has worked in the restaurant industry might recognize an immediate gray area here: Who is given the title of manager and what their work entails varies drastically from business to business and, in the case of McMenamins, from location to location. Furthermore, many employees work in more than one capacity and may make a certain amount for a shift served on the line and a different amount for a shift in their role as manager.

In 2020, the DOL specified that the term “manager” refers to anyone whose primary duty is managing the enterprise, directing other employees and contributing substantially to hiring or firing decisions. This definition highlights the initial concern behind excluding managers from tip pools: that their supervisory power may lead them to allocate tip money unfairly. Still, managers’ duties are not universally attributed and accountability practices that may address these fears differ across enterprises.

Current and past employees of the Cedar Hills and Edgefield McMenamins locations received a letter from the DOL informing them of their investigation and its findings. A Reddit user posted a copy of the letter the DOL has since confirmed. It claims that $800,000 of tip money generated at these locations thus ended up in the pockets of assistant managers and assistant-assistant managers instead of lower-level employees. 

The Oregon Restaurant and Lodging Association (ORLA) provides proprietors and the public with updates on legislation changes and court rulings surrounding tip pooling. Many of their entries underline how difficult deciphering these rules can be. Jason Brant, president of ORLA, spoke to Willamette Week about this difficulty. 

“In many of these operations, especially counter-service models, the people that are serving the guests are interchangeable,” Brandt said. 

ORLA recommends that businesses should withhold tips from managers and supervisors in all tip pools. 

McMenamins is not the only proprietor that stands accused of mismanaging tips. The Oregon-based pizza chain Pizzicato was similarly charged last month, according to Willamette Week. Willamette Week also covered the story of a small cafe owner who was confronted by employees about the legality of her tip pool. The owners of all three establishments responded with surprise and their respective logic surrounding their tip system. While McMenamins and Pizzicato have the infrastructure to withstand the fines and legal fees that may be incurred, such an indictment likely spells closure and debt for small restaurant owners. 

McMenamins continues to refuse to pay out the $800,000, but they have changed their tip pool procedure, according to an anonymous employee. Though this employee does not work at one of the locations targeted by the DOL’s investigation and is not a manager, they are now required to sign off on tip distribution at the end of each shift. When working as front-of-house staff, employees now state the amount they are willing to tip out to the kitchen and other support staff and then record the exact amount they are personally owed. While it does not address the issue of tipping management, this attempt at collective and transparent payouts may be the start of a new tipping trend.

The McMenamins name has brought this issue to the attention of business owners across Oregon if they were not already aware. Many restaurants, bars and cafes will likely make similar changes to their tip pooling policies in the coming months in an attempt to stay ahead of legal action. The consequences of these rules for McMenamins, Oregon’s restaurant industry and its employees remain to be seen.