Substantive Pay Equality: Tips, Commissions, and How to Remedy the Pay Disparities They Inflict

Empirical evidence demonstrates that racial and ethnic minorities tend to earn less in tips than their white coworkers and racial and ethnic minorities and women tend to earn less in commissions than their white, male coworkers. Moreover, a growing body of research suggests that neither tipping nor commissions are always a business necessity. However, neither courts nor litigants have recognized a disparate impact cause of action under Title VII of the Civil Rights Act of 1964 alleging that customer preference-based pay schemes like tipping and commissions cause employees to earn less because of their race or sex and cannot be justified as job related and consistent with business necessity. This Article articulates a novel litigation strategy for combating pay disparities wrought by tipping and commissions. First, it explains why the overwhelming majority of tipping and commission schemes that cause race- or sex-based pay disparities evidence a prima facie case of disparate impact under Title VII notwithstanding the commonly-held beliefs that Wal-Mart Stores, Inc. v. Dukes forecloses disparate impact review of policies that afford discretion over pay and cases like AFSCME v. Washington foreclose disparate impact scrutiny of policies that set pay based on multiple, complex factors (e.g., market forces, customer preferences). Second, because of a circuit split in defining the business necessity defense, this Article argues that employers in some jurisdictions would be unable to carry their burden of proving that tipping and commission schemes are a literal business necessity, as arguably required under Title VII by the Civil Rights Act of 1991. Third, this Article contends that Title VII’s defenses to disparate impact caused by merit systems or production-based earnings systems do not apply to tipping and commission schemes as they exist today because such schemes do not materially reflect employees’ merit or measure earnings based on the production of tangible things. Finally, this Article presents original, non-litigation alternatives to attacking such pay disparities. Most notably, it reconceptualizes Ricci v. DeStefano — an opinion regarded in much scholarship as a material roadblock to substantive workplace equality — as offering employers the option of ensuring substantive pay equality by offsetting race- or sex-based disparities in tips or commissions via disparate treatment (i.e., affirmative action). For instance, this Article contends that employers do not violate Title VII by offering pay or preferential treatment to racial and ethnic minorities who earn less in tips than their white coworkers because of race (e.g., more-desirable shifts or customers) as a “Ricci offset” to cure the disparate impact that the employer caused in the first place. For generations, employers have maintained tipping and commissions as facially-neutral, customer preference-based pay schemes which afford employees formal pay equality, but fail to guarantee pay untethered to customers’ racist and sexist preferences. This Article provides a litigation road-map and non-litigation alternatives to employees subjugated and discriminated against by such pay schemes. In doing so, it lays the groundwork for those employees to secure not just facially-neutral pay policies, but substantive pay equality.