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Wednesday, November 30, 2011

Cafe Gratitude Says It's Closing Over a Tip Pooling Lawsuit. Is Pooling Tips Even Legal?

Posted By on Wed, Nov 30, 2011 at 4:43 PM

The blowup of the Cafe Gratitude empire, yesterday's biggest food-news story, was ostensibly brought on by the owners' response to several lawsuits that waiters have filed over the restaurants' tip-pooling policies. In recent months, several nationally renowned New York restaurants have also been hit with lawsuits over tip pooling.

Is tip pooling even legal in California? SFoodie posed that question to several San Francisco attorneys specializing in employment law.

The answer, in brief, is yes. Matt Marca, a labor employment lawyer with the San Francisco office of Littler, which is representing Cafe Gratitude,* told SFoodie that California state courts first ruled in 1990 that tip pooling is legal among staff who provide direct service to customers -- waiters, bussers, bartenders. 

In 2009, the California Appellate Court ruled in Etheridge v. Reins International that the pool could be expanded to include anyone in the chain of service. "The court took a pragmatic look at service," Marca explains. "The restaurant doesn't know everything that goes into a tip that a customer gives for service. When you talk to a maitre d' and he's unpleasant, maybe you leave less of a tip. Maybe he's nice to you and you leave a better tip. If you sat down, and your waiter was wonderful but the food was horrible, maybe you left less of a tip, and the kitchen's the issue. Maybe your plate arrives and the food is wonderful and the service is great, but the plate had leftover food from the last meal on it, so you're not going to leave as good a tip. That's the dishwasher's fault." 

Furthermore, management has a right to gather the tips and distribute them to staff. That's because, according to Marca, employers are allowed to exercise control over the process to make sure all employees are fairly treated. "Why should the busboy be at the whim of a waiter who happens to be greedy and doesn't want to tip?" Marca says. "On the flip side, if there is a lawsuit over tip pooling, the employer is the one who will be sued." The employer should therefore be keeping record of tips coming in and tips paid out. 

Who is not allowed to participate in tip pooling arrangements? Management.

Stephanie Bornstein, who teaches employment and labor law at UC Hastings, explained to SFoodie in an email, "In general, owners and their 'agents,' including managers or supervisors who can hire and fire other employees or who supervise, direct, or control other employees, cannot share in the pooled tips that were intended for the waitstaff."

There is one way under California state law that restaurants can exert more control over whom tips are distributed: by adding a service charge to the bill -- say, Chez Panisse's 17% -- which the state treats differently than a tip. "To be considered a gratuity under the law, the tip must be 'over and above' what is owed to the business for the food, drink, and services rendered." Whether such a service charge is enough to protect a restaurant from being sued for improperly distributing pooled tips is unknown.

*Clarification: This post has been updated to reflect the fact that Mr. Marca is representing Cafe Gratitude.

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Follow me at @JonKauffman.

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Jonathan Kauffman


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