Colorado Federal Court Rules Workers Don’t Qualify for Tip Pools When Restaurant Is Closed

In Green v. Perry’s Restaurants Ltd., No. 21-cv-0023-WJM-NRN (D. Colo. Feb. 3, 2026), the federal court in Colorado delivered a significant victory for tipped employees and restaurant workers, ruling that Perry’s Steakhouse and Grille violated federal Fair Labor Standards Act (FLSA) and state wage laws by improperly distributing tip pool money to employees who worked when the restaurant was closed to customers. The decision clarifies tip pooling regulations and tip credit requirements for restaurants across the country.

In a detailed order issued Feb. 3rd, U.S. District Judge William J. Martínez granted partial summary judgment to servers Lance Green and Anderson Khalid, who sued on behalf of similarly situated workers at Perry’s locations in Colorado, North Carolina, Alabama, and Florida. The ruling addresses a practice that has become increasingly common in the restaurant industry: using mandatory tip pools to compensate workers who have minimal or no customer interaction. While not precedential, the Court’s ruling is worthy of attention as it provides clear guidance on tip pooling compliance that restaurants nationwide should heed to avoid similar FLSA violations

Understanding Mandatory Tip Pool Systems and Tip Sharing in Restaurants

Like servers at many upscale restaurants nationwide, workers at Perry’s were required to contribute 4.5% of all their sales to a mandatory tip pool. These pooled tips were then distributed weekly to other employees working in designated “tip share job codes,” including hosts, food runners, bussers, server assistants, bartenders, and service well bartenders.

The distribution was based on hours worked in positions designated as tip-eligible—a system that appears straightforward on its face. But as the lawsuit revealed, Perry’s was distributing these pooled tips to employees working morning shifts before the restaurant opened its doors to guests.

Working in an Empty Restaurant

The evidence presented to the court painted a clear picture of what these “AM employees” actually did. Opening bussers arrived as early as 11:00 AM to sweep and mop floors, polish silverware, stock server stations, check landscaping in the parking lot, and prepare bread stations—all while the restaurant remained closed until 4:00 PM (or 10:30 AM on Fridays and Saturdays for lunch service).

Opening hosts had similar preparatory duties: watering plants, confirming reservations, arranging mint bowls, copying menus, and stocking supplies. According to internal documents, these AM host shifts were specifically scheduled to end at 3:00 PM—a full hour before the restaurant opened to dinner guests.

Perry’s data analyst identified more than 3,400 instances where employees clocked in under tip share job codes before 2:00 PM and clocked out before 5:00 PM on the same day, excluding Friday and holiday lunch shifts.

FLSA Tip Credit Rules: When Employees “Customarily and Regularly” Receive Tips

At the heart of the case lies a critical provision of the Fair Labor Standards Act (FLSA) regarding tip credits and minimum wage for tipped employees. Federal law allows restaurants to pay servers a reduced “subminimum” cash wage (as low as $2.13/hour federally, or $9.30/hour in Colorado) and use a portion of their tips to make up the difference to reach minimum wage. This is known as the “tip credit.”

However, there’s an important restriction: employers can only claim this tip credit if tipped employees retain all their tips, with a limited exception for tip pools. Employers may require servers to share tips with other employees, but only if those employees also “customarily and regularly receive tips.” The question before the court was whether AM employees working in a closed restaurant could meet this standard.

Following the Fifth Circuit’s Lead

In analyzing the issue, Judge Martínez noted that the Tenth Circuit has yet to look at this issue and therefore looked to the Fifth Circuit’s 2015 decision in Montano v. Montrose Restaurant Associates, which established that determining whether an employee customarily and regularly receives tips requires examining “the extent of an employee’s customer interaction” and “whether the employee is engaging in customer service functions.”

The Fifth Circuit specifically noted that even employees working in the dining room aren’t considered tipped if their work isn’t customer-service oriented—like an electrician repairing a chandelier.

Applying this framework, the court found that Perry’s AM employees simply didn’t have sufficient customer interaction to qualify as customarily and regularly tipped workers. The Sixth Circuit had previously distinguished “off-hour employees” like overnight janitors as clearly not qualifying as tipped employees, and Judge Martínez found the AM employees fit squarely into this category.

Restaurant Tip Pool Defenses Rejected by Federal Court

Perry’s mounted several defenses that the court systematically rejected:

The “Defined Occupation” Argument: Perry’s argued that because the Department of Labor recognizes “bussers” as a tipped occupation, their AM bussers automatically qualified. The court rejected this formalistic approach, noting that “labels are easily molded to fit a party’s goals and cannot be determinative.” Just calling someone a busser doesn’t make them a tipped employee if they’re working when no customers are present.

The “Front of House” Argument: Perry’s contended that AM employees were “clearly front of house employees” and thus should qualify. But the court found this distinction irrelevant, pointing to recent Department of Labor guidance that focuses on actual customer interaction and service-related functions rather than physical location in the restaurant.

Limited Customer Contact: Perry’s tried to argue that AM employees did interact with customers—for instance, people occasionally came in before opening to buy gift cards or make reservations, and about 140 of the 3,400 shifts occurred when private lunch parties were happening. The court found these occasional interactions insufficient, noting that “occasional limited contact with customers” doesn’t make someone customarily and regularly tipped. The private lunch events occurred only about 4% of the time—roughly once to three times per month at each location.

Phone Reservations: Perry’s also argued that AM hosts regularly took reservation calls. But the court found it “implausible that someone who made a reservation, but who has yet to walk into Perry’s, much less be seated or receive customer service, would have any incentive to leave a tip during an interaction over the phone.”

Ruling on Tip Pool Violations and Customer Service Requirements

Judge Martínez’s conclusion was unequivocal: “…as a matter of law and logic, employees who work morning shifts at a restaurant while it is closed to guests cannot have more than de minimis customer interaction sufficient to qualify them as ‘customarily and regularly tipped’ employees.”

The court granted partial summary judgment to the plaintiffs, finding that distributing tip pool funds to AM employees violated both the FLSA tip credit provisions and Colorado wage laws. For the Colorado location specifically, the court also found that Perry’s violated the Colorado Wage Claim Act (“CWCA”) by failing to notify customers about its tip sharing policy from August 2019 to May 2024.

Implications for Restaurant Tip Pooling Practices and Wage Laws

This ruling should be taken nationwide as a warning for tip pooling compliance. Many upscale restaurants employ similar morning prep shifts and mandatory tip pool arrangements. The decision makes clear that simply labeling workers as “bussers” or “hosts” doesn’t entitle employers to pay them from tip pools if they’re working when the restaurant is closed to customers.

For restaurant workers and tipped employees, the message is equally clear: tips you earn from serving customers shouldn’t subsidize the wages of employees who aren’t providing customer service. If you’re required to contribute to a tip pool that includes off-hour workers, your employer may be violating federal wage laws and FLSA tip credit regulations.

The case now proceeds to trial on the parent company liability issue and damages. But for the fundamental question of whether Perry’s tip pooling practice was lawful, the court has spoken: paying prep workers from servers’ tips when no customers are present violates FLSA tip credit requirements and federal wage laws.