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Employment Law Alert – Employers can Require “Tip Pools” – Risk Litigation

April 16, 2009 | Frank R. Ubhaus
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Under the California Labor Code, tips that are left for the employee, whether in cash or as an added item on a credit card charge, are considered to be the property of the employee.  Unlike Federal law, the California employer cannot use any portion of the tip income to offset the minimum wage obligations of the employer.  The employer has an obligation to pay over the full amount of the tips received to the employees.

Over the last few years, California courts made it clear that a restaurant can impose a mandatory “tip pool” amongst its employees.  However, the employer or a manager/supervisor who acts as the agent of the employer – such as the restaurant manager or a supervisor with hiring/firing authority—cannot share in those tips.

Appellate Cases
Four California appellate court cases issued since January 1, 2009 address mandatory “tip pools” in interesting and somewhat inconsistent ways.  [Lu v. Hawaiian Garden Casino, Inc., 170 Cal.App.4th 466 (1/22/09); Budrow v. Dave & Buster’s of California, 171 Cal.App.4th 875 (3/2/09); Grodensky v. Artichoke Joe’s Casino, 1st Dist. Court of Appeals, A119035 (3/11/09); Etheridge v. Reins International California, Inc., B205005, 2d Dist. Court of Appeals (3/27/09)]

These cases held that mandatory tip pools are permitted in non-restaurant work environments (specifically casinos); that an employee who contributed to the mandatory tip pool can recover from the employer amounts that were improperly distributed from the tip pool to managers/supervisors as well as attorneys’ fees and court costs for bringing the claim; and that employees who are not involved in the direct chain of service (such as bartenders or kitchen staff) can still receive a share of the mandatory tip pool.

These cases are of particular interest to Berliner Cohen partners, Frank Ubhaus, who heads the firm’s litigation department, and Roberta Hayashi, who leads the firm’s employment law practice.  They have been defending a class-action filed in 2004 to challenge the mandatory tip pool practices of a firm client.

California Supreme Court Review
“These cases are just the beginning of the debate”, said Ubhaus.  “The California Supreme Court has been invited to review a couple of these cases, and can be expected to note the inconsistency between two of the cases on the subject of whether an employee can sue directly under the Labor Code or needs to take a circuitous path through California’s Unfair Competition laws.  Employers should be particularly concerned about the suggestion by [a dissenting jurist] that courts should consider whether the distribution of tips is ‘fair”, particularly where the distribution includes employees not directly involved in contact with the patron – such as kitchen staff, or employees who are independently tipped – such as floorpersons in a casino.”

The Message: Potential Lawsuit
If there is one consistent message, which emerges from these cases, it is that employers, who mandate tip pooling amongst their service employees, can be sued and found liable for amounts improperly distributed to managers/supervisors even if the employer itself did not directly benefit from the tip pool.

Because the liability will include the potential recovery of attorneys’ fees, these cases will continue to be filed, even if the amount of the “improper” distribution is small.

For further information, you are welcome to contact Frank R., or Roberta S., or by telephone, 408.286.5800.

©2009 Berliner Cohen.  This article is not intended to and does not constitute legal advice or a solicitation for the formation of an attorney-client relationship and no attorney-client relationship is created through your use of the Berliner Site or your receipt of the materials.  Attorneys in the Berliner Cohen Employment and Litigation Groups will be pleased to provide further information regarding the matters discussed in this article.