If the Customers Think It’s a Tip, It’s a Tip
Posted on 10-Mar-08 by The Timekeeper
When customers purchased tickets to World Yacht dining cruises around New York harbor, they were charged a 20 percent “service fee” as part of the ticket price. According to the wait staff on these cruises, most of the patrons assumed this “service fee” was a gratuity that went to the servers, so they seldom left any additional tip. Unfortunately, management apparently didn’t agree, and so kept the service fee for itself.
Naturally, the servers weren’t happy with this situation, so they sued.
In February, the NY State Court of Appeals sided with the servers, finding that World Yacht dining cruise led customers to believe a 20 percent service fee was a gratuity, and thus it was a violation of state labor law for the company to keep the money.
The cruise operators argued the service fee was a mandatory payment and that gratuities must be optional. Using the “reasonable patron” standard, the court held that New York labor law — which forbids an employer from retaining any part of a gratuity or “any charge purported to be a gratuity” — applies not only to a voluntary gratuity or tip, but also to a mandatory service charge that is held out to the customer as a substitute for a tip.
So, if you’re an employer in New York, and you want to keep service fees for yourself, better make sure your customers know those are in addition to, not in place of tips for the servers! Neither you as the employer (nor other employees who normally wouldn’t be tipped) get to claim any of your wait staff’s hard-earned tip money.
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[...] In a recent case in New York, employees of a harbor dinner cruise company successfully argued that a service fee the employer charged was interpreted by customers as a “gratuity” the customers believed was being given to (or shared with) service employees. Thus, they generally didn’t give additional tips to the servers. Only thing was, the company was retaining the service fee for itself. That got the cruise operators into some hot water. [...]