Posted on 05-May-08 by The Timekeeper

In yet another story under the heading of “be careful what you ask for,” ten skycaps sued American Airlines, claiming the airline’s $2-per-bag curbside check-in fee was cutting in to their tips and violated Massachusetts’ tips law.

Typically, the law allows employers a “tip credit” for employees who normally receive tips — in other words, the employer can pay less than the normal minimum wage to tipped employees as long as they at least make up the difference in tips, bringing their effective hourly wage to above the minimum.

But even if employers pay tipped employees more than minimum wage, they’re generally not allowed to keep tips (or fees customers might reasonably interpret as tips) for themselves, or force tipped employees to share their tips with management or non-tipped employees.

(Laws do vary from one place to another. Whether you are an employer or an employee, if you have any questions or suspect there might be a problem, you would be wise to check with your attorney to find out the specific rules that apply to you in your location and taking into consideration the specifics of your situation.)

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.

So what was the outcome in the Massachusetts case?

Well, one skycap had his case tossed out because he worked out of St. Louis (which, being located in Missouri, isn’t subject to Massachusetts tips law — no big surprise there).

Of the remaining nine, eight of them don’t work for American Airlines; they work for G2 Services, which is a third-party service vendor with whom AA contracts. Nevertheless, the jury ordered AA to pay all nine skycaps a total of $325,000. (Note: AA is appealing the verdict, based in part on the skycaps’ employment situation, and has also asked the court for a new trial.)

But in a move I’d be willing to bet the skycaps didn’t anticipate, the airline then decided to ban tips for skycaps at Boston Logan International Airport. If the skycaps are no longer allowed to accept tips, they’re no longer subject to Massachusetts tip law. (And, I suppose, depending on how the ban is worded and how miffed the airline is with them for bringing the suit, they could even be subject to disciplinary action if they’re caught accepting a tip. I’m guessing this is probably not what the skycaps had in mind when they brought their suit.)

Of course, not allowing the employees to accept tips means the employers can’t take advantage of the tip credit against their wages any more. American Airlines says G2 Services has advised them all Boston skycaps will receive immediate hourly wage increases to place them in full compliance with all federal and state hourly wage laws. According to AA, the one remaining skycap who is their employee has been paid at rates well above the federal and state minimums, but will receive a rate increase as well.

Nice for the employees that they get a raise in their base pay and may eventually get some small portion of $325,000 (assuming the award stands on appeal, and after the lawyers take their undoubtedly substantial cut), but I’m not sure being banned from accepting tips was part of their game plan.

Retaliation on the part of the airline? Almost certainly, in my opinion. But they’re not the first company to retaliate against employees who file FLSA lawsuits (see IBM), and they probably won’t be the last. As an employee, that’s one of the risks you have to take into account before you jump in to filing any kind of lawsuit against your employer.

As an employer, you have to weigh the risks of alienating your employees before you decide to take retaliatory action. Obviously, IBM and American Airlines felt it was worth the risk at the time they took their actions. I wonder if they would have made the same decision in a stronger economy?

Food for thought.

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