For many months, the Trump administration has been attempting to push through a regulatory change that would make it easier for restaurant owners to skim tips from their employees. As if that weren’t rotten enough, it now appears that high level officials, including White House budget chief Mick Mulvaney, attempted to bury a government analysis showing how badly the move would hurt workers who rely on gratuities to make a living.
Back in December, the Department of Labor proposed a rule that would overturn an Obama-era regulation and let restaurants force staff like waiters, waitresses, and bartenders to their share tips with their colleagues in the kitchen, as long as they were paid the federal minimum wage of $7.25 an hour. In theory, this is not an inherently bad idea. It’s unfair that front-of-the-house staff, who in high-end dining tend to be young and white, can make a decent living off tips, while back-of-the-house staff like cooks and dishwashers, who are typically minorities, have found themselves stuck earning near poverty wages. Wouldn’t it be great if the Trump administration’s proposal let managers gather up tips and distribute them more fairly among their whole crew? But in reality, the regulation could also become a license for your local Buffalo Wild Wings proprietor to simply commit tip theft.
As the labor-backed Economic Policy Institute has noted, “the rule doesn’t actually require that employers distribute ‘pooled’ tips to workers. Under the administration’s proposed rule, as long as tipped workers earn minimum wage, employers could legally pocket those tips.” Why not just tweak the language? Labor Secretary Alexander Acosta claims his department doesn’t have the legal authority to ban tip theft; Congress would have to do it.
It’s hard to say precisely how much pay America’s servers could see siphoned off if Trump’s regulation takes effect, in part because there’s a lack of good data about tip theft in general. But it’s possible to make an reasonable estimate. The Economic Policy Institute, for instance, thinks that restaurant workers could lose $5.8 billion annually in the bargain. The Department of Labor, on the other hand, has been officially silent on this point. Despite the fact that federal law requires government agencies to perform a cost-benefit analysis for new regulations, the proposal that department put out in December did not contain any estimate of the economic toll the regulation change might take on workers. The administration claimed that it couldn’t produce such an analysis, because it was too hard to predict how restaurants, their employees, and customers would react to the change.
It turns out that wasn’t the whole story. In February, Bloomberg Law’s Ben Penn broke the news that Trump appointees in the Department of Labor had actually flushed multiple in-house estimates of how the rule would effect restaurant workers, including one that showed they would lose billions in tips:
Senior department political officials—faced with a government analysis showing that workers could lose billions of dollars in tips as a result of the proposal—ordered staff to revise the data methodology to lessen the expected impact, several of the sources said. Although later calculations showed progressively reduced tip losses, Labor Secretary Alexander Acosta and his team are said to have still been uncomfortable with including the data in the proposal. The officials disagreed with assumptions in the analysis that employers would retain their employees’ gratuities, rather than redistribute the money to other hourly workers. They wound up receiving approval from the White House to publish a proposal Dec. 5 that removed the economic transfer data altogether, the sources said.
On Wednesday, Penn reported out Mulvaney’s role in the scheme. In short, the section of Trump’s Office of Management and Budget responsible for reviewing all new federal regulations tried to block the new tip pooling rule unless the Department of Labor added its cost estimates back in. Mulvaney, as director of OMB, overruled them, and let the proposal go through.*
This weird and wonky scandal shows how far the administration is willing to go to downplay unflattering data and push through a regulation that will likely hurt working class Americans. But there may be an upside. Amit Narang, the regulatory policy advocate at Public Citizen, told me that the decision to hide its cost analysis could make the tip pooling regulation easier to challenge in federal court under the Administrative Procedures Act, which requires the government to take certain steps while promulgating new regs. “This is about as serious a violation of the rule making process as there is,” he told me. This week’s revelations “make it 100 percent clear that there was a deliberately withheld economic analysis. That’s a big problem in defending this rule legally. I think that makes it very vulnerable.”
The story also comes served with a bitter digestif of irony. In public, Mulvaney has been a quite vocal advocate for carefully considering the costs of new regulations, presumably because it would lead to government to implement fewer of them. In May of last year, he told reporters that the Obama administration “failed to follow the law in many, many circumstances” and “simply imposed regulation without proper regard to the cost side of that analysis”—a claim that earned him three Pinocchios from the Washington Post’s Fact Checker column. When Mulvaney became acting director of the Consumer Financial Protection Bureau this year—yes, he now wears two major hats in the Trump administration—he sent an email to staff telling them that they’d have to be diligent about justifying all their rules with careful economic analysis.
Speaking of data: the Dodd Frank Act requires us to ‘consider the potential costs and benefits to consumers and covered persons.’ To me, that means quantitative analysis. And while qualitative analysis certainly can play a role, it should not be to the exclusion of measurable ‘costs and benefits.’ In other words: there is a lot more math in our future.
Mick Mulvaney: A stickler for math when it comes to regulating payday lenders, but not so much when it comes to stealing tips from waitresses.
*Correction, March 22, 2018: An earlier version of this story incorrectly referred to Bloomberg’s reporter as Ben Parr.
