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Tip-Pooling – Can My Employer Take My Tips and How?

 

Employer taking employee tipsSome History

For better or worse, tipping has become an accepted part of American commerce. It is a practice that first emerged in the late 1800s. In 1917, the California legislature passed a law for the first time prohibiting employers from taking any portion of employees’ tips. However, the courts struck down the law as a violation of constitutional due process. The legislature tried again in 1929 and this time succeeded. However, now the law permitted employers to credit tips against employees’ wages, i.e., use tips in place of wages. It wasn’t until 1975, after repeated failed attempts, that the legislature was finally able to pass a law that prohibited the practice of “tip credits”.

Labor Code § 351

California Labor Code § 351 now reads:

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.

Interestingly, the federal law – the Fair Labor Standards Act – continues to permit “tip credits”, though with restrictions. As usual, California laws continue to offer greater employee protections than their federal counterparts. While federal laws usually trump or “preempt” state laws, courts have ruled that this is not the case with the FLSA and the California Labor Code. Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 567; Skyline Homes, Inc. v. Department of Industrial Relations (1985) 165 Cal.App.3d 239, 250-251.

Section 351 seems pretty simple and straightforward. However, it also left open some important unanswered questions that the courts took it upon themselves to answer.

Can My Employer Take My Tips?

Yes. . .

Many industries, particularly the restaurant industry, have a “house” practice of mandatory tip-pooling, in which the employer takes employees’ tips, pools them, then allocates the money to its employees as it sees fit. Tip pooling is nowhere mentioned in section 351 and that would therefore seem to make it an illegal “taking” of the employee’s “sole property”. However, the courts engaged in some fancy analysis to conclude it is permissible, so long as the distribution is “fair and reasonable”. Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062. So to that extent, yes, your employer can take your tips away from you.

. . . and no

But the employer can’t take any part of your tips for itself either. Even if your employer sets up a mandatory tip pool, it and its “agents” (meaning any employee with managerial/supervisory functions) are prohibited from getting any of the money from that pool. That is clearly stated at the very beginning of section 351: “No employer or agent shall collect, take or receive any gratuity or part thereof . . .”.

So Who Can Participate in the Tip Pool?

Here is where things get tricky because the courts seems to be all over the place. Section 351 makes it clear that employers and their supervisory/managerial agents cannot get any of the money from a tip pool. But it is unclear what other employees can. Can the tip pool monies be allocated to dishwashers? Busboys? Sushi chefs? Janitors? Accountants? Security guards? Etc. Where do you draw the line?

Since 1990, the bright-line rule was that only those employees who are involved in “direct table service” are entitled to participate in the tip pool. Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062. However, that all changed recently.

In March 2009, a court held that employees who did not engage in direct table service could still participate in the tip pool, so long as they were in the broader “chain of service”. Etheridge (Brad) v. Reins International California, Inc. (2009) 172 Cal. App. 4th 908. So, for instance, bussers who clear away plates after a customer has already left might not qualify as having engaged in “direct table service” but would qualify as having been involved in the “chain of service”, and so could participate in the tip pool. Another court held that bartenders could participate in tip pools, even if they never directly brought drinks to the customer’s table (although there the court stuck with the old model and ruled that this was “direct table service”). Budrow (Aaron) v. Dave & Buster’s of California, Inc. (2009) 171 Cal. App. 4th 875.

In June 2009, a court reversed an $86 mil. judgment when it held that supervisory/managerial agents could share in “collective tip boxes” because they were not “tip pools” but “tip allocations”. Chau v. Starbucks Corp., 174 Cal. App. 4th 688 (Cal. App. 4th Dist. 2009). I call this one the “Starbucks exception” because it only seems to apply if you work at Starbucks.

In February 2016, there was a major development. The Ninth Circuit Court of Appeals overruled several federal judges and sided with the US Department of Labor in saying that tips can NOT be shared with cooks and dishwashers since they are not “customarily” tipped by customers. Oregon Restaurant & Lodging Assoc. v. Perez (9CCA, Feb. 23, 2016,

So the question of which specific employees can participate in a tip pool remains up in the air, to be answered on a case-by-case basis. The key for the courts is the intent of the tipping customer. If the tipper (arguably) intended that a type of employee share in the tip, then they are participants in the “chain of service” and/or “direct table service”. An accountant or security guard probably would not qualify under this standard, but a bartender and busser probably do.

My Employer Has Violated the Tip Laws, Can I Sue?

Yes you can. At the moment, it is unclear whether you have a private right of action under section 351. The California Supreme Court is considering that question at the moment. Lu (Louie Hung Kwei) v. Hawaiian Gardens Casino, Inc., 2009 Cal. LEXIS 5505 (Cal. May 26, 2009).

However, as your lawyer can explain to you, you can still probably bring a claim for violation of the California Unfair Competition Law (California Business & Professions Code 17200 et al.) and/or for penalties under the California Private Attorney General Act (California Labor Code § 2698 et al.). But I recommend you leave that to your lawyer.

152 Comments

  1. Alberto Orozco on November 14, 2017 at 1:58 pm

    Hello, my questions is, I’m a busser at a restaurant and the waiters give me tips. They are suppose to give me the tips on a everyday basis. I have not received tips by a few waiters in the last few month. I talked to my manager and she told me that “she was not my babysitter and that it was my responsibility to ask for my tips at the end of my shift” I would ask for them almost everyday that I work but, no luck. I resigned from my positions and was not able to collect the tips that are owed to me. I’m able to file a complain with the labor commissioner?

    • Eugene Lee on November 14, 2017 at 6:03 pm

      I think you should go ahead and file the labor board complaint. If you brought the theft of your tips to the attention of management, I think it was management’s responsibility to put a stop to it.

  2. Karen Bluthardt on July 4, 2017 at 2:18 pm

    Can a boss in a bar take from you $40 t0 $100 out of each check for tips being taxed and you only work 16 hours a week?He says his book keeper told him to do it.

  3. Rafael Gilbert on May 9, 2017 at 11:14 am

    it’s a little I work at Park and play Hollywood Casino or contract except early and are tips go into a pool or are managers supposed to be able to get pool they react they help out a little bit very little some of them don’t even help out a lot and they get tipped out we have 4 different managers.

  4. Sarah on April 11, 2017 at 4:07 pm

    I have questions about the tip in my restaurant. Would you please contact me?
    Thanks

  5. DORIS on March 13, 2017 at 9:29 am

    i work in a catfish restuarant in california and my employer/owner puts [art of our tips in her bra when she is cleaning a table. several customers have see her do this, what can i do?

  6. Keith Pina on December 11, 2016 at 10:34 pm

    i WORK FOR A LG. PIZZA CHAIN IN SO. CAL THEY TAKE ALL OUR TIPS , WHEN I WAS HIRED NOTHING WAS TAKEN , THE 50% , THE 100% ITS NOT FAIR IVE GOT 250/300 EVERY CHECK, IT HURTS…HAY ITS CC TIPS …

  7. Nicole on November 20, 2016 at 9:05 am

    I bet no-one has heard of a restaurant like this. The place where I work has a tip jar up front and by the way this is a whole in the wall place where it’s run by father and son. So there’s only a hand full of employees. Well a Customer will come in and order and see how hard we are working cause no one really has a designated spot we just do what needs to me done for example there’s many day I do it all except for take the order at the counter, but I cook it expo it deliver to the customers table and clean up after. But back to what I was saying the custome will see how hard we are working and ask the owner does this tips go to them and the owner says yes I give them a paid vacation and a Christmas bonus this helps pay for it. But only girls that has been there for a year can benefit from it. Ok that’s fine. But we are so busy at this restaurant and I have counted the drawer and tip jar many of times on in slow and busy nights out of the 8yrs I’ve been there and I have never once seen less than $20 in the tip jar and that’s not excluding the credit card tips if u do $20 × 300 days that’s $6000. And there is way to many days where there is like $50- $60 in the jar. Well his bonus is only like $250 and his pay vacations well biggest one giving is to a girl that works like 50 hours a week and hers was $500 the most I ever got was $250 doing 35- 40hrs a week . And let’s take into consideration that he only gives out bonuses and pay vacation to the most 5 people. So that means not even giving out half of the tip money
    He’s just collecting it for himself. Is this right?is this illegal? Someone please help me

  8. Grace on November 18, 2016 at 10:30 am

    I work at an event planning company. Every weekend we have events that we attend to and we set up and clean up, sometime the client pays for full coordination. We usually have moms that give us tip, sometimes directly to us (the employees) or to the employer (my boss) saying it is FOR US. the employees. but their rule is that they take everything, and if we get handed tip, we have to hand all the tip over to them.. What am i supposed to do. If i file a lawsuit against them, what is the percentage possibility that I will win.

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