I’ve written before about the case of Samiento v. World Yacht, Inc., in which servers on dining cruises around New York harbor won back wages because their employer was charging cruise patrons a “service fee” — which the patrons were interpreting as a gratuity (and thus not leaving a separate tip for their server) — but which cruise management was keeping all for themselves.
Now from what I’m hearing, it seems similar suits, as well as suits alleging other illegal “tip pool” arrangements, are potentially one of the Next Big Things in wage and hour litigation.
For instance, in the case of Orlando Colon, et al. v. Hilton Worldwide, Inc., et al., nine banquet workers at the luxury Waldorf-Astoria hotel in New York City have filed a lawsuit against the hotel and Hilton Worldwide, Inc., seeking class-action certification. They allege banquet customers were assessed a “service charge” which the customers were led to believe was a gratuity to be paid to the service staff. However, while the service fee was 21.5%, according to the complaint only 15% of the charge was distributed to the waitstaff. They complain about “special banquet gratuities” being distributed to non-banquet employees instead of the folks who actually worked the event.
In another New York case, three suite attendants in the Arthur Ashe Stadium at the Billie Jean King National Tennis Center during the U.S. Open Tennis Tournaments have filed lawsuit to recover what they say are gratuities improperly retained by management during the years 2004 through 2009. At issue is a 21% service charge on all catered food and beverages. They’re also claiming underpayment of overtime — a potentially big deal, as the attendants supposedly worked up to 100 hours a week during the tournaments — and are seeking class and collective action certification for this suit.
Your Mileage May Vary
In some cases, the courts have decided a mandatory service charge isn’t a gratuity, because patrons don’t have a choice about paying it. And under federal law, so long as the employer pays the servers at least minimum wage, they don’t have to share the service charge with the wait staff.
But hold on a minute…
See, many states have their own rules. And the way wage and hour law works, when there’s a disagreement between state and federal law, whichever one is more favorable to the employee is the one that “wins.” For instance, in New York and Massachusetts, if the fee is called a service charge and the customer believes the service charge is a gratuity, then no portion of the money can be distributed to anybody other than the waitstaff. That was the basis for Samiento v. World Yacht, Inc. and is the basis for both the Waldorf-Astoria and the U.S. Open cases. Additionally, in New York, the statute of limitations goes back six years instead of the three allowed under the FLSA, which is what enables the U.S. Open suit to stretch all the way back to 2004.
So if you’re in the hospitality industry in New York state, consider yourself alerted.
On the other hand, and over on the other coast, on February 23, 2010 the Ninth Circuit U.S. Court of Appeals in Oregon issued an opinion in the case of Misty Cumbie v. Woody Woo, Inc. that it’s OK under the FLSA for employers to require waitstaff to participate in a ”tip pool“ — and even to give the bulk of the money in the pool to kitchen staff — as long as the employer doesn’t take advantage of the tip credit for the servers’ hourly wage. In the Cumbie case, for instance, the restaurant paid higher than minimum wages to their waitstaff to start with. Because the staff were making over the minimum wage and no tip credit was being taken, the court found there was nothing in the FLSA that would prohibit the tip-sharing arrangement.
So, What Have We Learned From This?
Well, since the Ninth Circuit court’s opinion on tip sharing just came down a couple of weeks ago, there’s no indication yet whether other courts will adopt the same stance. Frankly, if other circuits take a different tack, it wouldn’t be the first time. So relying on this ruling as absolute protection of your tip-sharing arrangement is probably premature… but it does help.
At least under federal law, as long as you’re paying your servers minimum wage with no tip credit, you should be on fairly solid ground if you do mandate tip sharing and give some of the tip money to non-waitstaff personnel. You’ll want to check on your state laws first, though, just to make sure.
When it comes to mandatory “service fees” your best bet is to be very clear with your patrons. Spell it out. If the charge is an “administrative fee” or “facilities charge” that goes to the house and not to the servers, or if the fees are split between the house and the waitstaff, say so. Ambiguous terms such as “service fee” are just asking for trouble.
If you run a banquet hall, catering facility, restaurant, hotel or are otherwise in the hospitality industry: do you charge any sort of “service fee” for special events or large parties? What do you call the fee, and what do you tell the patrons about its distribution? Do you take advantage of the tip credit for your waitstaff, or do you pay them a regular above-minimum wage? Does you mandate tip sharing? If so, which employees participate in the pool?
The real bottom line, of course, is what I almost always end up saying… check with your labor law advisor to make sure whatever you’re doing, whatever you’re thinking about doing, is on the up-and-up. A few minutes and a few dollars spent on a consultation now can save you tens of thousands (or more) on a lawsuit later.