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Tip Pooling

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Tip Pooling

1. Are Tip Pooling Arrangements Lawful?

California Labor Code Section 351 prohibits employers and their agents (generally considered to include supervisory/managerial personnel) from sharing in or keeping any portion of a gratuity left for or given to one or more employees by a patron. The law further states that gratuities are the sole property of the employee or employees to whom they are given.

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.

"Agent" is defined by the Labor Code to mean every person other than the employer having the authority to hire or discharge any employee or supervise, direct, or control the acts of employees.

"Gratuity" is defined in the Labor Code as a tip, gratuity, or money that has been paid or given to or left for an employee by a patron of a business over and above the actual amount due for services rendered or for goods, food, drink, articles sold or served to patrons.

At least one California appellate court (Leighton v. Old Heidelberg, Ltd., 219 Cal.App.3d 1062 (1990)) has held that tip pooling is not barred by Labor Code Section 351. Similarly, the California governmental agency that regulates this area of law – the DLSE – has also taken the position that employers are allowed to implement tip pooling arrangements. Based on the court decision and the DLSE’s position, it is probably safe for an employer to require employees to share their tips with other employees. However, as indicated above, the California Supreme Court – the final authority on the law – has not addressed this question.

2. Assuming That Tip Pooling Arrangements Lawful; Whom May Employers Include In Such Arrangements?

Assuming that tip pooling arrangements are lawful, the question becomes – whom may an employer include in a tip pooling arrangement? No court has issued a ruling addressing which employees are allowed to share in such a tip pooling arrangement.

The DLSE, however, has taken position that when an employer implements a tip pooling arrangement, the tips can only be distributed among those employees who provide "direct table service." The DLSE has further opined that “such employees could conceivably include waiters and waitresses, busboys, bartenders, host/hostesses and maitre d’s” but that employees who do not provide direct table service (such as dishwashers, cooks, and chefs -- except in restaurants where the chefs prepare the food at the patron’s table) are not allowed to be included in the tip pooling arrangement.

Moreover, the DLSE has also opined that “tip pooling cannot be used to compensate the owner(s), manager(s), or supervisor(s) of the business, even if these individuals should provide direct table service to a patron.” In this regard, the DLSE website -- http://www.dir.ca.gov/dlse/FAQ_TipsAndGratutities.htm -- which specifically addresses common questions and answers about tips and gratuities provides, in pertinent part, as follows:

Q. I work in a large restaurant as a waiter. My employer told me that I am required to share my tips with the busboy and the bartender. Am I obligated to do this?

A. Yes. According to a California court, Labor Code Section 351 allows involuntary tip pooling. Therefore, your employer can require that you share your tips with other staff that provide service in the restaurant. In this regard, it’s DLSE’s position that when a tip pooling arrangement if in effect, the tips are to be distributed among the employees who provide "direct table service." Such employees could conceivably include waiters and waitresses, busboys, bartenders, host/hostesses and maitre d’s. Employees who do not provide direct table service and who do not share in the tip pool include dishwashers, cooks, and chefs, except in restaurants where the chefs prepare the food at the patron’s table, in which case the chef may participate in the tip pool. Additionally, tip pooling cannot be used to compensate the owner(s), manager(s), or supervisor(s) of the business, even if these individuals should provide direct table service to a patron.

The non-binding information on the DLSE’s website is confirmed by a DLSE Opinion Letter (2005.09.08) opining that an employer may have a tip pooling arrangement so long as:

(1) Tip pool participants are limited to those employees who contribute in the chain of the service bargained for by the patron, pursuant to industry custom [examples of employees included in “chain of service” are waitpersons, buspersons, bartenders, hostesses, wine stewards and “front room” chefs], and

(2) No employer or agent with the authority to hire or discharge any employee or supervise, direct, or control the acts of employees may collect, take or receive any part of the gratuities intended for the employee(s) as his or her own.

Again, the California Supreme Court has not addressed this issue.

3. The Bottom Line.

Employers should not include in any tip pooling arrangement: (1) any employee who does not provide “direct table service;” or (2) any supervisory or managerial personnel even if they provide “direct table service.”    "Supervisory/managerial personnel” include any employee having the authority to hire or discharge any employee or supervise, direct, or control the acts of employees.

 

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