Court Recognizes Private Right of Action for Tip Pooling Violation
In a departure from prior case holdings, a California Court of Appeal has now ruled that there is a private right of action under Labor Code Section 351 which allows employees to recover civil damages for tip pooling violations. In the case, Grodensky v. Artichoke Joe's Casino, the defendant casino implemented a mandatory tip pooling policy that required dealers to pay a set hourly amount into a tip pool, to be divided among shift managers, floor managers, board persons, and chip sellers. Plaintiff Grodensky, a dealer, filed a class action alleging claims for conversion, unfair competition, and violation of Labor Code sections 351 (tip pooling) and 1194 (minimum hourly wage laws). The trial court held in part that the mandatory tip pool was legal, but that the casino violated Labor Code section 351 by distributing a portion of the tip money to shift managers.
Labor Code Section 351 ("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. . . ." The trial court ruled that the casino's shift managers qualified as "agents" of the casino because they were mainly responsible for ensuring that the floor managers were doing their jobs correctly. The shift managers assigned the floor managers to sections of the casino and assigned dealers to particular tables. They also had the authority to discipline employees by sending them home, and when higher-level managers were absent from the premises, the shift managers had authority over the entire casino. Because the shift managers were agents of the casino, the casino violated Section 351 by requiring the dealers to share their tips with the shift managers.
Both parties in the case appealed various rulings by the trial court. Notably, the casino appealed the trial court's holding that Section 351 provided Grodensky with a private right of action. Analyzing this issue on appeal, the Court of Appeals referred to Labor Code section 354, which provides: "Any employer who violates any provision of this article [including Section 351] is guilty of a misdemeanor, punishable by a fine not exceeding one thousand dollars ($1,000) or by imprisonment for not exceeding 60 days, or both." Section 354 provides for administrative enforcement of the tip protection law, giving the Department of Industrial Relations the authority to enforce Section 351 by finding the employer guilty of a misdemeanor. The Court reasoned that, by expressly stating in Section 351 that every gratuity is "the sole property of the employee or employees to whom it was paid, given, or left for," the Legislature appears to be strongly implying that the employee also has a private right of action; otherwise, the statute provides the employee with an unenforceable right, as the Department of Industrial Relations does not have the authority to recover gratuities wrongfully taken by an employer. The Court analyzed the legislative history and found that it supports this conclusion. The Court also noted that an additional policy reason for concluding that Section 351 creates a private right of action is to dissaude plaintiffs from bringing a cause of action for unfair competition whenever the plaintiff is deprived of his or her tip by the employer, by allowing employees to recover their tips by a simple action under Section 351.
The Court recognized that this holding contradicts the previous state court holding in Lu v. Hawaiian Gardens, 170 Cal.App.4th 466 (2009), and the federal court holding in Matoff v. Brinker Restaurant Corp., 439 F.Supp.2d 1035 (C.D. Cal. 2006). The Court stated that because there was little analysis of the statute in Matoff, and because neither the federal court in Matoff nor the state court in Lu considered the significance of the language in the statute regarding the employee's property interest in the gratuity, the Court of Appeal did not find these cases to be persuasive.
The Court of Appeals upheld the trial court's finding that the casino's shift managers were agents of the casino, and therefore could not lawfully participate in the tip pool. However, the court also upheld the trial court's finding that the casino's policy of requiring a tipping pool for the dealers did not violate Section 351. In upholding this ruling, the Court rejected Grodensky's arguments on appeal that the type of tipping pool at issue in this case violated Section 351 for multiple reasons, including: (1) it was not a "group tip context" as with waiters in a restaurant because in this situation the dealers were directly given the money from players after winning hands, (2) the casino took the money and then distributed it to other employees, (3) casinos do not have a long-term practice of tipping pools like restaurants, and (4) the fixed point system was unfair. In rejecting these arguments the Court commented that Section 351 does not address these types of equitable considerations, but rather, "the statute's clear intent is to prevent the public from being defrauded, which could happen if employers or their agents use any portion of the gratuities left for employees for their own benefit."
The full text of the decision is available here.