When to split tips is clearly defined by state

This week's question comes from Matt S. in the Dogpatch, who asks:

Q: “I work in Fisherman's Wharf as a waiter in a family restaurant that is part of a national chain. Recently, they started mandatory tip pooling where we have to put all our tips into a pool and then it is split up between the waiters, bussers, hostesses, bartenders, chef, expediter and even the general manager. It doesn't seem fair. I generally get bigger tips because I hustle for the customer. I have worked at other restaurants where I got to keep all my tips and I would tip out the bartender, busser and others based on how I felt they were supporting me. I thought TIPS stood for “to insure prompt service” and were earned by those who gave the service. Is this fair?”

A: Matt, this is a very good question especially as we move into the biggest tipping season of the year. As you can imagine, there has been a flurry of legislation and litigation concerning who has the right to tips and service charges. California Labor Code Section 351 states: “No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for. An employer that permits patrons to pay gratuities by credit card shall pay the employees the full amount of the gratuity that the patron indicated on the credit card slip, without any deductions for any credit card payment processing fees or costs that may be charged to the employer by the credit card company. Payment of gratuities made by patrons using credit cards shall be made to the employees not later than the next regular payday following the date the patron authorized the credit card payment.”

The law is like a game of Pick-Up Sticks: Among all that verbiage lies your answer. First, the law says “no employer or agent can take or receive a gratuity.” So the owner of a restaurant can't take your tips and neither can the general manager if they do not participate in the chain of service. The owner is an employer and the manager is an agent. However, if the manager also acts as host or expediter and doesn't have the right to hire or fire then they may not be exempt as an agent. Section 350 defines an agent as “every person other than the employer having the authority to hire or discharge any employee or supervise, direct, or control the acts of employees.” The courts treat managers and shift supervisors, who do not have the right to hire and fire and who participate in the stream of service, generally, as employees.

Appellate courts have sought to interpret Section 351 to determine if mandatory tip pooling, or a shared gratuity box (think Starbucks), is a violation of the law. Short answer: probably not. In the case of Etheridge v. Reins Int'l California, Inc. in 2009, the appellate court stated “a mandatory tip pool is supported by common sense and fairness, and protects the public, the employees and the restaurant employer. These policy reasons extend to mandatory tip pools which include employees who do not provide direct table service, but participate in the chain of service. Dishwashers and other kitchen staff are encouraged to give their best possible service as they know they will participate in the financial rewards if the customers are pleased with their work, even though the customers do not personally see them doing it. And a mandatory tip pool makes certain that these employees receive their fair share when the patrons are pleased with their service, but have no way to tip them directly.”

A service charge, often added by caterers at holiday parties, might not be considered a tip or gratuity.

A service charge, charged as a separately designated amount that is part of the amount due for services rendered, is not a gratuity within meaning of Labor Code Section 350's provision defining a gratuity as an amount over and above the actual amount due. It may be charged by the caterer, or hotelier when there is room service, to defray the costs of the service provided.

Make sure, going into a job, you know what the tipping policies are. And if you are hiring a caterer ask them what the service charge is for. If have been denied your tips and gratuities, show this article to your boss and ask for them back. If they refuse, or retaliate against you, locate a good trial lawyer to help you get what you have worked hard for.

Christopher B. Dolan is owner of the Dolan Law Firm. Email questions to help@dolanlawfirm.com.

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