Tip Pooling Class Action Lawsuits - The In Vogue Claim - Are You At Risk?
Do you have a tip pooling arrangement that includes tipping out your kitchen employees? Do you have supervisory employees who get tipped out when they perform busser, host, server, kitchen or bartender duties? If you answer "yes" to either one of these questions, your restaurant could have an unlawful tip pooling arrangement, and you could be exposed to a class action lawsuit.
Tip Pooling Lawsuits Are On the Rise
Wage and hour class actions being filed against California restaurants are nothing new. First, it was claims for overtime pay made by assistant managers. Then, meal and rest break penalties became the most popular class action claim to file against restaurants. Most recently, California restaurants are being inundated with a wave of class action tip pooling lawsuits. The recent San Diego Superior Court case involving Starbucks' tip pooling arrangement will only add more fuel to the fire.
On Thursday, June 22, 2006, Judge Patricia Cowett ruled that a lawsuit filed by former Starbuck's barista Jou Chou on behalf of as many as 100,000 Starbucks baristas (counter workers) could proceed to trial as a class action. Chou's lawsuit alleges that Starbucks improperly required its baristas to share their tips with their shift supervisors. With potentially millions of dollars at stake, Chou's case against Starbucks will continue to garner attention in legal circles, obtain the attention of plaintiffs' attorneys, and highlight this area of potential liability for California's restaurants.
It is essential that you review your tip pooling policy and make sure it complies with the law.
Tip Pooling Rules and Regulations
Mandatory tip pooling arrangements are governed by federal and California laws regulating voluntary gratuities provided by guests (i.e., not mandatory service charges) and are subject to three important limitations:
1. A Mandatory Tip Pooling Arrangement Cannot Include A Restaurant's Owners Or "Agents" (Managers And Supervisors).
California law prohibits restaurants, restaurants' owners, and their "agents" from participating in mandatory tip pooling arrangements. [Cal. Lab. Code § 351; DLSE O.L. 1998.12.28-1, p. 2.] Chou's lawsuit against Starbucks involves this issue because it alleges that Starbucks' shift supervisors are employer agents who cannot participate in tip pools. Under California's tip pooling law, an employer agent is "every person ... having authority to hire or discharge any employee or supervise, direct, or control the acts of employees." [Cal. Lab. Code § 350(d).] This definition has been clarified by California's courts and the California Division of Labor Standards Enforcement ("DLSE"), the agency authorized to enforce California's wage and hour laws. According to the DLSE, an agent includes "any managers or supervisors who have the authority to either hire, fire, discipline, assign work, schedule shifts, set wages, or adjust employee grievances." [DLSE O.L. 1998.12.28-1, p. 2.] It is not necessary that the managers or supervisors spend the majority of their time performing these duties to be agents. [Jameson v. Five Feet Rest., 107 Cal.App.4th 138, 144 (2003).] In fact, it appears that managers may be agents under California's tip pooling laws even when they spend the majority of their time setting up reservations, greeting guests, seating guests, and performing other host and busser responsibilities.
2.A Mandatory Tip Pooling Arrangement Cannot Include Employees Who Do Not Customarily and Regularly Receive Tips.
Tip pooling arrangements can only include those employees who "customarily and regularly receive tips." [29 U.S.C. § 203(m).] These employees include those who provide direct table service to guests such as servers, hosts, and bussers. They probably also include wine stewards, bartenders (unless the bartender is solely a service bartender who has no contact with guests), and front room chefs. [Kilgore v. Outback Steakhouse of Florida, Inc., 160 F.3d 294, 301 (6th Cir. 1998); DLSE O.L. 2005.09.08, p.2, n.1. ] They do not include employees like "dishwashers, cooks, or off-hour employees like an overnight janitor who do not directly relate with customers at all." [Kilgore, supra, 160 F.3d at 301.]
3.A Mandatory Tip Pooling Arrangement Must Be Fair and Equitable.
Proper tip pooling arrangements "ensure a fair distribution of the gratuity to those who earned it, making certain that each gets his fair share." [DLSE O.L. 1998.12.28-1, p. 2, quoting Leighton v. Old Heidelberg, Ltd., 219 Cal.App.3d 1062, 1071 (1990). This requires "some reasonable relationship between the degree to which the employee or category of employee provides such table service and the distribution of pooled tips." [DLSE O.L. 1998.12.28-1, p1.] Examples of reasonable tip pooling arrangements include one that distributed 80% of the tips to servers, 15% to bussers, and 5% to the bartender, and a second that required tipped employees to contribute 15% of their actual tips to a tip pool. [DLSE O.L. 1998.12.28-1, p. 2; Leighton, supra, 219 Cal.App.3d at 1071; DLSE O.L. 2005.09.08, p. 2.] These percentages are not carved in stone, and restaurants have the necessary discretion and latitude to implement a tip pooling distribution that is appropriate to their circumstances. However, a tip pooling arrangement with percentages dramatically different than these examples is open to attack and may be found to be patently unfair in violation of California law. [DLSE O.L. 1998.12.28-1, p. 3.]
Practical Guidelines
It is unclear how much employer involvement constitutes an "employer mandated tip pooling policy." Directly obtaining tips for redistribution is not required, nor is having a written agreement or written policy. Simply suggesting to servers that they tip out other employees may suffice, if the restaurant then rewards those servers who follow the tipping arrangement with better or more shifts. Accordingly, restaurants should assume that any tip pooling arrangement could be considered "mandatory" and should adhere to the following guidelines when they have either formal or informal tip pooling policies:
1.Do not include managers or supervisors in tip pooling arrangements if they have the authority to hire, fire, discipline, assign work, schedule shifts, set wages, or adjust employee grievances;
2.Only include employees who customarily and regularly receive tips pursuant to industry custom. Such individuals typically included those who provide direct table service to guests such as bartenders, servers and bussers. Do not include other employees such as kitchen workers who do not have direct contact with your guests;
3.Make sure that the tips are distributed to participating employees in a reasonable manner, proportionate with the employees' contribution to guest service, such as 80% of the tips to the servers, 15% to bussers, and 5% to the bartender for a sit down restaurant.
4.Consult legal counsel if you have any question regarding the legality of your tip pooling policy or desire to implement a program.