Home | Search | Contact Us

	CLIENT ALERT: The California Tip Trap - Who's Next? Employment/Labor  By Teresa R. Tracy Any employer with tipped employees in California felt – or should have felt – a Grande Iced Macchiato chill coming from the San Diego court that held that Starbucks shift supervisors could not legally participate in the tip pool. Starbucks – another victim of the California tip trap – was ordered to refund more than $100 million in back tips and interest to thousands of California baristas who were illegally forced to share their tips with shift supervisors. Following close on the heels of this decision was a series of investigative articles published by the Los Angeles Times and widely circulated on the Internet regarding car wash employees some of whom claim they are paid only through tips. As reported, the California Labor Commissioner intends to be more involved, the unions have already started organizing efforts with this as the rallying cry in the carwash industry, and the plaintiff’s class action bar can’t be far behind! Here is what California employers need to know about employee tips: 1. California law defines “gratuity” as any tip, gratuity, money, or part thereof, that is paid, given to, or left for an employee by a patron of a business over and above the actual amount due such business for services rendered or for goods, food, drink, or articles sold or served to such patron. 2. Unlike federal law, California law does not allow tips to substitute for or be a credit against the minimum wage or overtime. 3. California law states that all such gratuities belong to the employee. 4. If the customer leaves a tip as part of a credit card charge, the employer (a) cannot apportion any part of the credit card processing fees or costs to the employee whose tip was left as part of the credit card charge, and (b) must pay the full amount of the gratuity to the employee not later than the next regular payday following the date the patron authorized the credit card payment. California law does allow mandatory tip pools, but under guidelines that are can be complicated and confusing to interpret and apply. Here is a summary of those guidelines: 1. No employer or employer agent – anyone who has the direct or indirect authority to hire or discharge any employee or supervise, direct, or control the acts of employees – can share in or keep any portion of a gratuity. Thus, in the DLSE’s opinion – as well as in the San Diego court’s mind – owners, managers, and supervisors cannot participate in a tip pool even if they are engaged in providing direct service to customers. 2. Only employees who contribute in the “chain of service” to the patron pursuant to industry custom can participate in the tip pool. According to the DLSE, employees who contribute to the service provided to a patron might “conceivably” include persons such as those who (a) vacuum, wash, polish and/or dry a car in the car wash industry, but not the cashier who collects payment since cleaning the car is the service which was bargained for, rather than cashiering; (b) towel or locker attendants, hair washers, stylists, manicurists and masseuses in the salon or spa industry; (c) parking attendants and valet or shuttle drivers in the car parking industry; (d) porters, dealers and runners in the gaming industry; and (e) waitpersons, buspersons, bartenders, hostesses, wine stewards and “front room” chefs in the restaurant industry. An early DLSE opinion had included hostesses and maitre d’s in the eligible participants, although hostesses and maitre d’s can be in the “gray zone” depending upon the organization and operation of the business. 3. The tip pool must also be fair. One tip pool arrangement that the DLSE approved in the restaurant industry required the employee receiving the tip to contribute 15% of the actual tips to the tip pool, and then distributing the tip pool to the other employees in the “chain of service” based on the number of hours the employee worked. 4. Mandatory “service charges” are not subject to the tip pooling rules since they are not left voluntarily by the customer. Thus, an employer can include employer agents and “indirect” service employees in a mandatory distribution of such charges. If the employer distributes all or part of a mandatory service charge, it is considered akin to a “bonus” and included in the calculation of overtime payments. (Since tips are voluntary, they are not included when calculating overtime.) The end result for employers in industries that involve tipping? Confusion and crushing liability. Employees can seek back wages and tip reimbursement for the past four years, together with penalties and interest. These penalties and interest amounts can, in many, many cases far exceed the actual amount of the tip that would legally have been due to the eligible employee. Add the attorneys’ fees to plaintiff’s counsel, and the amount due quickly becomes staggering. ******** For more information on this Alert or any other employment-related topic, please contact Teresa R. Tracy at (310) 821-9000, x717 or the attorney with whom you regularly work. This Alert is published as a service to our clients and friends. It is intended for informational purposes only and is not intended to constitute advertising, solicitation or legal advice. ©2008 Berger Kahn, A Law Corporation. All Rights Reserved. Back
	© 2008 Berger Kahn, A Law Corporation    Disclaimer