Last week Rep. Donna Edwards (D-Md) introduced legislation that would amend the Fair Labor Standards Act (FLSA) to establish a base minimum wage for tipped employees. Continue reading on Littler's Washington DC Employment Law Update blog.
On March 2, 2009, the California Second District Court of Appeal rejected a putative class plaintiff’s argument that the California “tip pooling” statute, Labor Code § 351 (“§ 351”), prohibits so-called “indirect” servers (in this case bartenders) from sharing tips. Budrow v. Dave & Buster’s of California, Inc., (2d Dist. 3/2/09). The plaintiff and appellant, Aaron Budrow, brought a putative class action against respondent Dave & Buster’s of California, Inc., on the theory that distributions from the “tip pool” to persons who did not provide direct table service violated § 351. After the trial court sustained demurrers (motions to dismiss) to two of appellant’s three causes of action without leave to amend, the employer moved for summary judgment on the remaining cause of action that alleged a violation of California Business and Professions Code section 17200. The trial court granted the motion. The court of appeal affirmed.
The employer owned and operated restaurants throughout the U.S., employing servers, cocktail servers, buspersons and bartenders. The plaintiff was a cocktail server for a brief period of time. (The employer contended that it employed the plaintiff for one month; the employee contended that he worked for the employer for three months.) Dave & Buster’s tipping policy requires that servers contribute 1% of their gross sales to bartenders and other employees.
The court of appeal in Dave & Busters first observed that § 351 does not distinguish on its face between “direct” and “indirect” servers. (See our previous entries on recent DOL and judicial interpretation of tip pooling arrangements here and here). The court explained that § 351 contains only two conditions: (1) the person must be an employee, and (2) the tip must have been “paid, given or left for” the employee. The court then “put to rest a controversy” caused by a 1990 case, Leighton v. Old Heidelberg, Ltd., 219 Cal. App. 3d 1062 (“Old Heidelberg”). The employee in Old Heidelberg contended that § 351 prohibits an employer from appropriating tips left for the server, and that requiring the servers to give part of his or her tip to the busboys was unlawful. The appellate court rejected the employee’s argument, reasoning that in leaving a tip, the patron intends to tip more than just the server or waiter. The plaintiff in Dave & Buster’s seized on language in Old Heidelberg “[i]f more than one employee, for example a waitress or a busboy, directly serve the table of a patron, the gratuity is left for the ‘employees’ within the meaning of section 351, and thereunder becomes their sole property as against the employer, to be equitably distributed between them” Old Heidelberg, 219 Cal. App. 3d at 1070.
The Dave & Buster’s court rejected the plaintiff’s “direct service” limitation on tip-pooling for four reasons: (1) Old Heidelberg did not define “direct” versus “indirect” service. A reasonable interpretation is that a bartender who mixes or pours a drink that a server delivers to a patron is “directly” serving the table. (2) Old Heidelberg made no attempt to fashion a rule that would limit tips to servers and busboys. (3) Old Heidelberg only held that busboys were entitled to share in tips; it did not address who is excluded from tip-pooling arrangements. (4) Old Heidelberg may have recognized some limitations on which employees could share in tips, but the court “did not decide what those limitations are, nor did it address the criteria or standards under which those limitations should be set.” The court noted that tip-pooling exists to “minimize friction between employees and to enable the employer to manage the potential confusion about gratuities in a way that is fair to the employees.” The court found it unnecessary to “ignite an artificial controversy over “direct” versus “indirect” service when the statute’s test is whether the tip was “paid, given to, or left for” the employee.
The Dave & Buster’s court provided helpful language for employers in different industries:
It is in the nature of a tip pool that it is based on the general experience of each particular establishment, that it is only broadly predictive of the reasons for and the patterns of tipping in that particular restaurant and that, in the final analysis, this is the best that anyone can do. It is simply not possible to devise a system that works with mathematical precision and Solomonic justice in each one of the millions of transactions that take place every day.
The Dave & Buster’s court also determined that the bartenders need not personally deliver the drinks to the table, and rejected the plaintiff’s reliance on a DLSE Opinion Letter dated Dec. 28, 1998, which identifies dishwashers, cooks and, for the most part, chefs, as employees who “do not provide direct table service” and therefore cannot share in tips. The court noted that “the propriety of administrative action predicated on the phrase ‘direct table service’ is not before us and therefore we do not express an opinion about any such administrative action involving the phrase ‘direct table service.’” Finally, in light of its holding, Dave & Buster’s did not address the employer’s arguments that the plaintiff could not invoke Cal. Bus. & Prof. Code § 17200 because he was not injured, and Labor Code § 355 mandates that the Department of Industrial Relations, and thus by implication not private parties, enforces § 351, i.e., there is no private right of action for an alleged violation of § 351. Employers should also note that California Labor Code § 353 and the FLSA require employers to retain accurate records of tips paid.
Until the Supreme Court of California decides the pending Starbucks tip-pooling class action case (in which a San Diego judge awarded $86 million, plus interest and attorneys’ fees) Chou v. Starbucks, trial court case no. GIC 836925, employers should ensure that anyone with any management responsibilities does not share in the tips. A more conservative approach would be to limit the sharing only to those employees (1) without any management responsibilities and (2) with direct face-to-face contact with customers.
This blog entry was authored by Tyler Paetkau.
On January 22, 2009, a California Court of Appeal, Second Appellate District, issued an opinion upholding casino employers' right to maintain mandatory tip-pooling arrangements with dealers, finding no principled distinction between tip-pooling arrangements in the more familiar restaurant industry and the casino industry. Lu v. Hawaiian Gardens Casino, Inc., __ Cal. App. 4th __, (B194209 1/22/09). However, in partially reversing the summary judgment for the casino employer, the court also held that a triable issue of material fact existed as to whether certain "customer service representatives" and "senior customer services representatives" were "agents" of the employer entitled to participate in the mandatory tip-pooling arrangement. Further, although the court agreed with the trial court that California Labor Code sections 351 and 450 do not provide for a private right of action, it held that these sections can provide the predicate violation for an action under the California Unfair Competition Law (UCL), Cal. Bus. & Prof. Code § 17200. The court also recognized that employees could use alleged violations of California Labor Code §§ 351 and 450 to bring an action under the California Labor Code Private Attorneys General Act, Lab. Code §§ 2698 et seq.
The court found that there was sufficient evidence from which a reasonable jury could conclude that the customer service representatives have the authority to, and do, "supervise, direct, or control the acts of" the dealers, making them ineligible to participate in mandatory tip-pooling arrangements.
As reported in our prior blog entry, California employers should ensure that supervisory employees, such as floor managers, do not participate in a tip-pooling arrangement.
This blog entry was authored by Tyler Paetkau.
In an opinion letter dated December 19, 2008 (FLSA2008-18), the DOL found that itamae-sushi chefs and teppanyaki chefs were tipped employees under the FLSA, eligible to participate in employer-mandated tip pools.
Section 3(t) of the FLSA defines tipped employees as “any employee engaged in an occupation in which he/she customarily and regularly receives more than $30 a month in tips.” 29 U.S.C. § 203(t). Section 3(m) allows tip-pooling among employees who customarily and regularly receives tips. 29 U.S.C. § 203(m); see also 29 C.F.R. § 531.54.
Itamae-sushi chefs and teppanyaki chefs have direct contact with customers, at the bar counter area (itamae-sushi chefs) and at customer tables (teppanyaki chefs). In support of its opinion, the DOL cited its “longstanding position that counter persons who serve customers may participate in tip pools. Citing FLSA Field Operations Handbook § 30d04(a); Wage and Hour Opinion Letter 1/25/83 (waiter chef who brings food order from kitchen to table and cooks it on hibachi grill in front of customers may share in tip pooling).
Employers should note that not all chefs and cooks may participate in tip-pooling arrangements. Only those who have regular customer contact may do so. Similarly, servers, bellhops, bus persons, counter persons and service bartenders may participate in tip-pooling arrangements. Dishwashers, for example, cannot participate in tip pools. Employers also should note the variations in state laws regulating tip-pooling arrangements. See, e.g., California Division of Labor Standards Enforcement Opinion Letter dated 9/8/05 (tip pool should include only “those employees who contribute in the chain of the service bargained by the patron,” and should exclude any supervisory employee “with the authority to hire or discharge any employee or supervise, direct, or control the acts of employees”).
This blog entry was authored by Tyler Paetkau.
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