Working as a tipped employee, such as a server, can be a great way to earn a living in California. However, it's important that servers aren't taken advantage of by employers who might wrongfully withhold tips or violate the gratuity laws. The California Labor Code is designed to protect workers who are paid tips and gratuities — and it's critical that they are aware of their legal rights.
Commonly referred to as "tips," California Labor Code § 350 defines a gratuity as 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 the business for services rendered or for goods, food, drink, or articles sold or served to the patron." In other words, a tip is additional money paid to the server over the amount they were required to pay. Gratuities are generally left by customers to show satisfaction with the services they received.
Under California Labor Code, the term "wage" means any compensation—including monetary compensation and benefits—paid to an employee for the performance of labor. Because they are interpreted by courts as a gift from the customer to the employee, they do not meet the legal definition of compensation.
In California, tips are considered the sole property of the employee to whom they've been given. Whether the tip was given directly to the server or was left for them makes no difference. Employers are legally prohibited from collecting any part or all of the gratuities given to a server.
Since gratuities are the property of the employee to whom it was paid — and are not classified as wages — there are several legal implications that follow:
Typically, tips are voluntary and given at the discretion of the customer. While gratuities are distinguished from earned wages, they are not included in overtime pay calculations. However, most tips are still treated as taxable income by the IRS.
It is legal in California for an employer to pool tips. This means that an employer might require a server to share the tips they've made with bartenders, busboys/busgirls, and other employees. In fact, courts seem to have long favored tip-pooling — the court held in Leighton v. Old Heidelberg, tip-pooling "can only promote harmony among the employees, provide a peaceful environment in which to work and improve service to the public."
In addition, it is even legal for your employer to include your supervisors in the tip pool. However, the employer or their agents may not receive any money as a result of tip-pooling, even if the employer provided services directly to the customer.
A violation of California's tipping laws is a misdemeanor, punishable by a fine of $1,000, 60 days in jail, or both penalties. If an employer disregards these laws, a server may also bring a civil action against them by filing a claim with California's Division of Labor Standards Enforcement. They may also be entitled to commence a lawsuit to recover their damages.
It's essential to be aware that a lawsuit to recover gratuities from an employer who wrongfully withheld them is not the same as an unpaid wage claim under the California Labor Code. Since tips are the sole property of the employee, the lawsuit must be filed as a claim for conversion or unfair business practices. In some cases, an employee might also be able to bring a claim for breach of implied contract.
It's crucial to understand that there are different statutes of limitation that can apply, depending on the legal theory upon which your lawsuit is based. For example, a conversion lawsuit must be filed within three years from the time of the tip violation. If the action is brought under California's Unfair Competition Law, it must be commenced within four years. A lawsuit for breach of contract would need to be filed in either two for an oral agreement or four years if it was in writing.
Additionally, It is illegal for an employer to retaliate against an employee for reporting a tip law violation or making a Labor Board complaint. Significantly, an employee cannot be terminated, demoted, punished, or subjected to any other adverse employment action for asserting their rights. In such cases, an employee may be eligible to take legal action by commencing a wrongful termination or retaliation lawsuit
Servers work hard for their gratuities. If your employer violated the California tip law, it's essential to consult with a skilled employment law attorney who can advise you of your legal rights and remedies. At Optimum Employment Lawyers, we are committed to providing high-quality legal services, individualized attention, and focused counsel for gratuity law violations and a wide variety of employment matters. Contact us at (949) 954-8181 to schedule a consultation.