The Bartender's Bell Is Ringing after a Federal Court Gives
the Latest Endorsement for Tip-Pooling in California
In
Louie v. McCormick & Schmick Restaurant
Corp. – F.Supp.2d ---, 2006 WL 3087112 (C.D.Cal
2006), a Federal Court provided the latest endorsement for tip-pooling in California. Although
this is not the first case to do so, it is the first case to expressly
confirm that tip-pooling can extend to employees who are not directly in
the service chain relative to the tip obtained. That could include sharing
a server's tip with a bartender even where the patron did not order any
alcoholic beverages.
Nancy
Louie previously worked as a server for McCormick & Schmick
(McCormick), a restaurant chain in California.
She filed suit in California
against McCormick on behalf of herself and all individuals similarly
situated, challenging the tip-sharing arrangement in place at McCormick.
McCormick removed the action to federal court pursuant to the Class Action
Fairness Act of 2005 (28 U.S.C. 1332(d)(2). In her
Complaint, Louie alleges that McCormick's tip-sharing arrangement violates
California Labor Code § 351 because it mandates that she share tips with
bartenders who do not provide direct table service to patrons. She urged
the court to adopt a narrow construction of Labor Code § 351, i.e., to
limit tip-pooling to employees who directly serve patrons at their tables.
The United States District Court, Central District of California, declined
to do so, dismissing her claim without leave to amend.
At
the heart of the dispute is an interpretation of Labor Code § 351, which
provides, in pertinent part:
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 herby declared
to be the sole property of the employee or employees to whom it was paid,
given, or left for. . .
On
two prior occasions, California
courts have held that this statute does not prohibit mandatory tip-pooling
arrangements. (Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062; Jameson
v. Five Feet Restaurants, Inc. (2003) 107 Cal.App.4th 138. In Leighton,
the Court notes that
While the language of the statute
expressly prohibits various employer practices, there is no mention therein
of the employer-mandated tip-pooling, or any kind of tip-pooling among
employees. Tip-pooling has been around for a long time, as has section 351,
and had the Legislature intended to prohibit or regulate such practice, it
could have easily done so. . . . (Leighton, 219
Cal.App.3d at 1067.)
Similarly,
the Jameson Court
stated "[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 or otherwise violate section 351." (Jameson, 107 Cal.App.4th at 141.) In the end, the rationale
appears to be that no "taking" occurs, as used in section 351,
where an employer requires a server to pool tips with other service employees
who do not hire, fire, supervise or control their co-workers.
While
not challenging the propriety of tip-sharing arrangements per se, Louie
attempts to argue that only those who serve a patron at the table should be
allowed to share in the gratuity earned, thereby excluding bartenders,
among other co-employees at a restaurant. In support, she cites the Leighton Court's
language that describes tip sharing as a standard industry practice . . .among those employees who directly provide table
service to a [tipping] patron," (Leighton, 219 Cal.App.3d
at 1069.) (Emphasis added).
Rejecting
that argument, the United States District Court notes that the underlying
tip-sharing arrangement upheld in Leighton contained a provision
that bartenders would receive five percent (5%) of all servers’ tips. Thus,
the Leighton Court
cannot be interpreted to restrict tip sharing with bartenders. In addition,
the Leighton Court
highlights the public policy promoted by its ruling -- that "an
employer must be able to exercise control over his business to ensure an
equitable sharing of gratuities in order to promote peace and harmony among
employees and provide good service to the public." (Leighton, 219 Cal.App.3d at 1071.) Lastly, the Court concluded
that relevant administrative opinions of the California Division of Labor
Standards Enforcement ("DLSE") would likely be followed by the
California Supreme Court on this issue. In that regard, the DLSE has
sanctioned tip-pooling arrangements in which bartenders and other
"front room" employees receive equitable portions of customer
gratuities, base on the number of hours worked rather than on some
estimation of direct table service they provide. (DLSE Opinion Letter
2005.09.08; see also DLSE Opinion Letter 1998.12.28-1.)
While the California Supreme Court has
not yet ruled on this issue nor the propriety of tip-pooling in general, it
would appear that with two California appellate decisions, two DLSE Opinion Letters and now an endorsement from the
United States District Court, Central District of California, a restaurant
employer should feel fairly secure about the current state of tip-sharing.
Namely, tip-sharing arrangements that provide equitable distribution of
gratuities among co-employees, even those who did not directly serve a
patron, are permissible in California.
Just make sure that employers and supervisors do not share in the tip.
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