'Tip Pooling' and Wage and Hour Laws

The Fraser case arose at L'Espalier, a French restaurant in Boston, which required its wait staff to share their tips pursuant to an employer-established 'tip pool.' Under the policy, the 'front waiter' was required to share his or her tips from a shift with the other serving staff on duty, which included the maitre'd, the back waiters or bussers, the wine steward and the bartender. In June 2001, the restaurant's front waiters refused to submit their tips to the tip pool. The owner of L'Espalier directed the front waiters to comply with the policy, but they continued to refuse. The restaurant then fired the front waiters.

The waiters subsequently sued, claiming that the L'Espalier tip pool, a condition of their employment, deprived them of their wages (tips), in violation of Section 152A of the Massachusetts Payment of Wages statute. The Massachusetts Superior Court disagreed and granted summary judgment for the restaurant. The court concluded that the restaurant did not violate the statute because it did not 'retain' any of the tips, but simply distributed them among all the employees who served customers. The court rejected a Massachusetts Attorney General's opinion, as set forth in a document entitled, 'Commonly Asked Questions about the Massachusetts Wage and Hours Law,' which stated that service employees cannot be required to pool tips.

Leighton v. Old Heidelberg, Ltd.

In reaching his decision, the Massachusetts Superior Court judge relied on a 1990 California Court of Appeal decision, Leighton v. Old Heidelberg, Ltd., 219 Cal. App. 3d 1062 (1990). In Leighton, a waitress who had been fired for refusing to share her tips contended that the employer's mandatory tip-pooling policy violated ' 351 of the California Labor Code, which provided:

No employer or agent shall collect, take, or receive any gratuity or a part thereof, paid, given to, or left for any employee by a patron, or deduct any amount from wages due an employee on account of such gratuity, or require an employee to credit the amount, or any part thereof, of such gratuity against and as a part of the wages due the employee from the employer. Each such gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for '

Cal. Labor Code ' 351 (emphasis added). The Massachusetts court in Fraser observed that the verbs used by ' 351 to describe what was prohibited were similar to those used in the Massachusetts Payment of Wages statute, and that each statute could be construed to prohibit tip pooling. However, the Massachusetts Superior Court noted that, in Leighton, the California Court of Appeal held that employer-mandated tip pooling was a policy of common sense and fairness that ensures that the employees, and not employers, receive the full benefit of gratuities that patrons intended for the sole benefit of those employees who serve them. Accordingly, the Massachusetts court held, as the California court had held in Leighton, that because the employer did not receive any portion of the gratuities, the tip-pool policy at issue did not violate the wage and hour laws.

Amendment to Permit Tip Pooling

In 2004, presumably in response to the Fraser decision and the filing of other tip-pooling cases, the Massachusetts Legislature amended ' 152A expressly to permit the practice, with certain restrictions. Under the amended statute, those employees who may participate in the tip pool must be: 1) actually involved in serving food and beverages directly to customers, including wait staff, bussers and counter staff; or 2) service bartenders, even if they do not serve customers directly, because they provide beverages to those who then serve them to customers. The amended ' 152A provides that no portion of the tip pool may be distributed to management or even to service personnel who may have limited 'managerial responsibility.' Moreover, the new version of the statute also prohibits the sharing of tips with kitchen and administrative personnel because they are not involved in serving patrons.

The amendment of ' 152A, which essentially codified many of the salient aspects of the ruling in Fraser, did not stem the tide of tip-pooling cases in Massachusetts. There have been cases decided under the former ' 152A holding that all personnel engaged in the business of food and beverage service, including banquet coordinators in a catering business who did not actually serve food or beverages themselves, may share in a percentage service charge added to the final bill. See, e.g., Nedved v. 1760 Society, Inc., 2004 WL 504800 (Mass. Super. 2004). Other cases have held that servers are entitled to the full benefit of any tips, gratuities or service charges paid directly to them or to their employer on their behalf, and any payments to management, 'the house' or others not engaged in service of food or beverage as their primary duty, violated the former ' 152A. See, e.g., Williamson v. DT Management Inc., 2004 WL 1050582 (Mass. Super. 2004). Cases decided under the amended statute have likewise made clear that 'service charges' intended for those who serve patrons must be paid to the service personnel and not treated as an administrative charge of the restaurant. See, e.g., Cooney v. Compass Group Foodservice, 2004 WL 3120562 (Mass. Super. 2004). The amended statute also may impose liability on an employer for a policy that permits non-servers who are not part of management to share in tips. See, e.g., Moore v. Barnsider Mgt. Corp., 2006 WL 2423328 (Mass. Super. 2006).

In California

Although the California Court of Appeal decided Leighton in 1990, there do not appear to have been any significant reported California decisions on the issue until the last three or four years, when there was a new wave of tip-pooling cases in that state as well. In 2003, the California Court of Appeal reiterated that '[t]ip pooling is permissible under California law if an employer or agent does not take any part of a gratuity given to an employee by a patron ' ' Jameson v. Five Feet Restaurant, Inc., 107 Cal. App. 4^th 138, 141 (2003). In Jameson, a server challenged a tip-pooling policy that required her to provide 10% of her daily tips to the floor manager or 'the door,' as the position was known. The door acted as a host, greeted customers, set up the reservation sheet and seating arrangement and assisted in serving tables. In addition, the door scheduled servers' stations and supervised and disciplined servers, among other supervisory duties. Therefore, the court concluded that the door position was within the definition of the employer's 'agent,' who is expressly prohibited from receiving any part of a tip pool under Section 351. Id. at 145.

Another server in California challenged a tip-pooling policy maintained by a McCormick & Schmick restaurant that required the wait staff to share their tips with non-managerial employees. See Louie v. McCormick & Schmick Restaurant Corp., 460 F. Supp. 2d 1153 (C.D. Cal. 2006). Specifically, Louie complained that a server should not have to share her tips with bartenders who provided 'nominal or no direct table service' to her customers. Id. at 1155. While this issue is expressly addressed in the new ' 152A of the Massachusetts Payment of Wages statute, California Labor Code ' 351 does not specifically provide for tip pooling with bartenders who do not directly service the table. Nonetheless, the U.S. District Court for the Central District of California had little trouble concluding that the essential purposes of ' 351 were to ensure that: 1) employees were not forced to share tips with the employer or its agents in management; and 2) the employer not deduct tips from wages the employer is obligated to pay its employees. Id. at 1161. The statute did not prevent an employer from enforcing a policy that required a server to share her tips with other service employees who do not perform supervisory functions. See Id. at 1158. The court also observed that the server's reliance on ' 351's reference to tips as being the 'sole property' of the employee does not preclude tip pooling either. Instead, the language merely 'means that the tips are the employees,' rather than the employer's, property.' Id. at 1115, n.8.

The Louie court analyzed the legislative history of ' 351 and concluded, as the California Court of Appeal had concluded in Leighton, that the California legislature intended ' 351 to ensure that employers do not take tips intended for employees, but it was not intended to prohibit the sharing of tips among service personnel. Id. at 1158 n.8. The court also relied upon an advisory opinion issued in 1998 by the California Division of Labor Standards Enforce-ment ('DLSE'), which stated:

The purpose of tip pooling is to ensure a fair distribution of gratuities among those employees who provide direct table service to customers ' The prevailing industry practice distributes the overwhelming majority of all pooled gratuities to waiters and waitresses, followed by a smaller percentage to bus boys, and still a smaller percentage to other categories of employees who provide limited direct table service (i.e., bartenders, hostesses, and maitre'ds). This practice reflects, in an admittedly inexact way, the extent to which these categories of employees contribute in providing direct table service to a restaurant's customers. It is this rough correlation that makes tip pooling a fair and equitable system and that satisfies the requirement, set out in Labor Code '351 that every gratuity is 'the sole property of the employee or employees to whom it was paid, given, or left for.' Id. at 1162 (quoting 'DLSE' opinion letter 1998.12.28-1).

Conclusion

The recent wave of cases on tip pooling suggests that courts are unlikely to strike down this practice in the absence of a statute expressly prohibiting it. For those advising restaurant employers on how to devise and enforce such a policy, there are several themes to emphasize. First, one must consult the controlling wage and hour laws in the relevant jurisdiction in which the tip pooling policy will be enacted. Second, assuming the statute does not define who may participate in a tip pool with the level of specificity involved in the amended ' 152A of the Massachusetts Payment of Wages statute, an employer should make sure that the managers and 'the house' do not participate in the tip pool in any way. Third, even employees with limited managerial responsibilities should be excluded from participating in the tip pool, despite the fact that they may also share in the direct service of customers. Fourth, non-managerial employees, such as kitchen and administrative personnel, should not share in the tip pool.

In the end, courts analyzing these tip pool policies are interested in determining whether they are fair and equitable in the manner in which they distribute gratuities among the service personnel. Therefore, employers who wish to enforce tip pool policies should make sure that the policies are devised with this central goal in mind.

Neil V. McKittrick, a member of this newsletter's Board of Editors, is a Director and a member of Goulston & Storrs' Litigation and Employment and Labor Law Groups in Boston.

In 2003, a Massachusetts Superior Court ruled that a restaurant may require its wait staff to share tips with other employees in a tip pool without violating the Massachusetts Payment of Wages statute. It was one of only a handful of reported cases in the United States that had dealt with this issue at that time. Since then, there have been numerous cases involving various challenges to employer 'tip-pooling' policies, particularly in Massachusetts and California, with wait staff and other restaurant employees claiming that such policies violate state wage and hour laws. This article describes this recent line of cases, which are of particular interest to employers and employees in the restaurant or hospitality industries, but which have extended to other industries as well. The article also suggests guidelines for employers in the restaurant and hospitality industries to adopt so that their tip pooling policies do not run afoul of state wage and hour laws.

Fraser v. Pears Co., Inc.

The 2003 Massachusetts case, Fraser v. Pears Co., Inc., 2003 WL 21385384 (Mass. Super. 2003), seems an unlikely precursor to what quickly became a new genre of wage and hour litigation. The case involved the interpretation of a provision of the Massachusetts Payment of Wages statute, which had been on the books since 1952, in various forms, but which had been infrequently invoked in its more than 50-year history. The relevant portion of the statute in effect at the time of Fraser provided:

No employer or other person shall solicit, demand, request or accept from any employee engaged in the serving of food or beverage any payment of any nature from tips or gratuities received by such employee during the course of his employment, or from wages earned by such employee or retain for himself any tips or gratuities given directly to the employee for the benefit of the employee, as a condition of employment '

See Mass. Gen. Laws ch. 149, ' 152A (1983). The statute further stated: 'If an employer or other person submits a bill or invoice indicating a service charge, the total proceeds of such a charge shall be remitted to the employees in proportion to the service provided by them.' Id.

The Fraser case arose at L'Espalier, a French restaurant in Boston, which required its wait staff to share their tips pursuant to an employer-established 'tip pool.' Under the policy, the 'front waiter' was required to share his or her tips from a shift with the other serving staff on duty, which included the maitre'd, the back waiters or bussers, the wine steward and the bartender. In June 2001, the restaurant's front waiters refused to submit their tips to the tip pool. The owner of L'Espalier directed the front waiters to comply with the policy, but they continued to refuse. The restaurant then fired the front waiters.

The waiters subsequently sued, claiming that the L'Espalier tip pool, a condition of their employment, deprived them of their wages (tips), in violation of Section 152A of the Massachusetts Payment of Wages statute. The Massachusetts Superior Court disagreed and granted summary judgment for the restaurant. The court concluded that the restaurant did not violate the statute because it did not 'retain' any of the tips, but simply distributed them among all the employees who served customers. The court rejected a Massachusetts Attorney General's opinion, as set forth in a document entitled, 'Commonly Asked Questions about the Massachusetts Wage and Hours Law,' which stated that service employees cannot be required to pool tips.

Leighton v. Old Heidelberg, Ltd.

In reaching his decision, the Massachusetts Superior Court judge relied on a 1990 California Court of Appeal decision, Leighton v. Old Heidelberg, Ltd. , 219 Cal. App. 3d 1062 (1990). In Leighton, a waitress who had been fired for refusing to share her tips contended that the employer's mandatory tip-pooling policy violated ' 351 of the California Labor Code, which provided:

No employer or agent shall collect, take, or receive any gratuity or a part thereof, paid, given to, or left for any employee by a patron, or deduct any amount from wages due an employee on account of such gratuity, or require an employee to credit the amount, or any part thereof, of such gratuity against and as a part of the wages due the employee from the employer. Each such gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for '

Cal. Labor Code ' 351 (emphasis added). The Massachusetts court in Fraser observed that the verbs used by ' 351 to describe what was prohibited were similar to those used in the Massachusetts Payment of Wages statute, and that each statute could be construed to prohibit tip pooling. However, the Massachusetts Superior Court noted that, in Leighton, the California Court of Appeal held that employer-mandated tip pooling was a policy of common sense and fairness that ensures that the employees, and not employers, receive the full benefit of gratuities that patrons intended for the sole benefit of those employees who serve them. Accordingly, the Massachusetts court held, as the California court had held in Leighton, that because the employer did not receive any portion of the gratuities, the tip-pool policy at issue did not violate the wage and hour laws.

Amendment to Permit Tip Pooling

In 2004, presumably in response to the Fraser decision and the filing of other tip-pooling cases, the Massachusetts Legislature amended ' 152A expressly to permit the practice, with certain restrictions. Under the amended statute, those employees who may participate in the tip pool must be: 1) actually involved in serving food and beverages directly to customers, including wait staff, bussers and counter staff; or 2) service bartenders, even if they do not serve customers directly, because they provide beverages to those who then serve them to customers. The amended ' 152A provides that no portion of the tip pool may be distributed to management or even to service personnel who may have limited 'managerial responsibility.' Moreover, the new version of the statute also prohibits the sharing of tips with kitchen and administrative personnel because they are not involved in serving patrons.

The amendment of ' 152A, which essentially codified many of the salient aspects of the ruling in Fraser, did not stem the tide of tip-pooling cases in Massachusetts. There have been cases decided under the former ' 152A holding that all personnel engaged in the business of food and beverage service, including banquet coordinators in a catering business who did not actually serve food or beverages themselves, may share in a percentage service charge added to the final bill. See, e.g., Nedved v. 1760 Society, Inc., 2004 WL 504800 (Mass. Super. 2004). Other cases have held that servers are entitled to the full benefit of any tips, gratuities or service charges paid directly to them or to their employer on their behalf, and any payments to management, 'the house' or others not engaged in service of food or beverage as their primary duty, violated the former ' 152A. See, e.g., Williamson v. DT Management Inc., 2004 WL 1050582 (Mass. Super. 2004). Cases decided under the amended statute have likewise made clear that 'service charges' intended for those who serve patrons must be paid to the service personnel and not treated as an administrative charge of the restaurant. See, e.g., Cooney v. Compass Group Foodservice, 2004 WL 3120562 (Mass. Super. 2004). The amended statute also may impose liability on an employer for a policy that permits non-servers who are not part of management to share in tips. See, e.g., Moore v. Barnsider Mgt. Corp., 2006 WL 2423328 (Mass. Super. 2006).

In California

Although the California Court of Appeal decided Leighton in 1990, there do not appear to have been any significant reported California decisions on the issue until the last three or four years, when there was a new wave of tip-pooling cases in that state as well. In 2003, the California Court of Appeal reiterated that '[t]ip pooling is permissible under California law if an employer or agent does not take any part of a gratuity given to an employee by a patron ' ' Jameson v. Five Feet Restaurant, Inc., 107 Cal. App. 4 th 138, 141 (2003). In Jameson, a server challenged a tip-pooling policy that required her to provide 10% of her daily tips to the floor manager or 'the door,' as the position was known. The door acted as a host, greeted customers, set up the reservation sheet and seating arrangement and assisted in serving tables. In addition, the door scheduled servers' stations and supervised and disciplined servers, among other supervisory duties. Therefore, the court concluded that the door position was within the definition of the employer's 'agent,' who is expressly prohibited from receiving any part of a tip pool under Section 351. Id. at 145.

Another server in California challenged a tip-pooling policy maintained by a McCormick & Schmick restaurant that required the wait staff to share their tips with non-managerial employees. See Louie v. McCormick & Schmick Restaurant Corp., 460 F. Supp. 2d 1153 (C.D. Cal. 2006). Specifically, Louie complained that a server should not have to share her tips with bartenders who provided 'nominal or no direct table service' to her customers. Id. at 1155. While this issue is expressly addressed in the new ' 152A of the Massachusetts Payment of Wages statute, California Labor Code ' 351 does not specifically provide for tip pooling with bartenders who do not directly service the table. Nonetheless, the U.S. District Court for the Central District of California had little trouble concluding that the essential purposes of ' 351 were to ensure that: 1) employees were not forced to share tips with the employer or its agents in management; and 2) the employer not deduct tips from wages the employer is obligated to pay its employees. Id. at 1161. The statute did not prevent an employer from enforcing a policy that required a server to share her tips with other service employees who do not perform supervisory functions. See Id. at 1158. The court also observed that the server's reliance on ' 351's reference to tips as being the 'sole property' of the employee does not preclude tip pooling either. Instead, the language merely 'means that the tips are the employees,' rather than the employer's, property.' Id. at 1115, n.8.

The Louie court analyzed the legislative history of ' 351 and concluded, as the California Court of Appeal had concluded in Leighton, that the California legislature intended ' 351 to ensure that employers do not take tips intended for employees, but it was not intended to prohibit the sharing of tips among service personnel. Id. at 1158 n.8. The court also relied upon an advisory opinion issued in 1998 by the California Division of Labor Standards Enforce-ment ('DLSE'), which stated:

The purpose of tip pooling is to ensure a fair distribution of gratuities among those employees who provide direct table service to customers ' The prevailing industry practice distributes the overwhelming majority of all pooled gratuities to waiters and waitresses, followed by a smaller percentage to bus boys, and still a smaller percentage to other categories of employees who provide limited direct table service (i.e., bartenders, hostesses, and maitre'ds). This practice reflects, in an admittedly inexact way, the extent to which these categories of employees contribute in providing direct table service to a restaurant's customers. It is this rough correlation that makes tip pooling a fair and equitable system and that satisfies the requirement, set out in Labor Code '351 that every gratuity is 'the sole property of the employee or employees to whom it was paid, given, or left for.' Id. at 1162 (quoting 'DLSE' opinion letter 1998.12.28-1).

Conclusion

The recent wave of cases on tip pooling suggests that courts are unlikely to strike down this practice in the absence of a statute expressly prohibiting it. For those advising restaurant employers on how to devise and enforce such a policy, there are several themes to emphasize. First, one must consult the controlling wage and hour laws in the relevant jurisdiction in which the tip pooling policy will be enacted. Second, assuming the statute does not define who may participate in a tip pool with the level of specificity involved in the amended ' 152A of the Massachusetts Payment of Wages statute, an employer should make sure that the managers and 'the house' do not participate in the tip pool in any way. Third, even employees with limited managerial responsibilities should be excluded from participating in the tip pool, despite the fact that they may also share in the direct service of customers. Fourth, non-managerial employees, such as kitchen and administrative personnel, should not share in the tip pool.

In the end, courts analyzing these tip pool policies are interested in determining whether they are fair and equitable in the manner in which they distribute gratuities among the service personnel. Therefore, employers who wish to enforce tip pool policies should make sure that the policies are devised with this central goal in mind.

Neil V. McKittrick, a member of this newsletter's Board of Editors, is a Director and a member of Goulston & Storrs' Litigation and Employment and Labor Law Groups in Boston.