Tip & Gratuity Law in California: Server rights explained!

Tip & Gratuity Law in California: Server rights explained!

Working as a server in California is a great way to earn wages, tips, and meet new people. It's important, however, that servers don't get taken advantage of by their employers or other employees. California labor laws, specifically in the California Labor Code, are often misunderstood by the people they were designed to protect: the servers themselves. So it's a good idea to know your rights as a server. This blog covers some of the basics about wages, tips, and gratuities that all California servers should know.

What is a "tip" or a "gratuity"?

It may sound like an obvious question, but the foundation of California tip and gratuity rests on how California courts view the definition of "tips" and "gratuities." The Labor Code defines gratuities as money left for an employee by a customer above the actual amount due to the business. ((Labor Code, § 350.))

Courts have elaborated on this definition, calling gratuities a "free gift, a present" and emphasizing that there is no obligation for restaurant-goers to pay them. ((Herbert's Laurel-Ventura, Inc. v. Laurel Ventura Holding Corp. (1943) 58 Cal.App.2d 684, 694–695.)) Because gratuities are essentially viewed as gifts in California, their legal treatment is viewed primarily from the perspective of the tip-giver: what were they intending when they left the tip? Courts have found that the customer's intent was to give the employees a give above their normal wages. ((Id.))

Who owns your tips?

In California, tips are the sole property of the employee to whom they're given. ((Labor Code, § 351.)) Tips are almost never the property of the employer. ((Searle v. Wyndham Int'l (2002) 102 Cal.App.4th 1327, 1332.)) It makes no difference whether the tip is given directly to or left for the employee—the tip belongs to the employee.

Because gratuity is the sole property of the employee or employees to whom it was paid, several legal implications follow:

  • If you receive tips, they are separate from your wages. ((Labor Code, § 351.))
  • Your employer cannot deduct your tips from your minimum hourly wage. ((Id.))
  • Your employer must pay you the minimum wage and may not pay you a lesser amount because you receive tips.
  • If a customer leaves you a tip on a credit card, your employer may not charge you any credit card processing fee. ((Id.))

Is a tip a "wage"?

In short, no. Under California's Labor Code, the term "wage" means any compensation—including monetary compensation and benefits—paid to an employee for the performance of labor. ((Labor Code, § 200, subd. (a); Ware v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1972) 24 Cal.App.3d 35, 43–44.)) Intuitively, it seems like a tip would fall under this definition, but because courts define a tip as a gift from the customer to the employee, they don't meet the definition of compensation.

In California, the employer of a tipped employee must pay at least the minimum wage—regardless of whether the employee receives a tip. In other words, servers make an $8.00 minimum wage, plus tips. Tips may not be included in an employer's calculation of the employee's wage.

Importantly, however, the minimum wage will be going up soon to $9.00 per hour starting on July 1, 2014, and then again to $10.00 per hour on January 1, 2016. ((Labor Code, § 1182.12.))

Does my employer need to track my tips?

Yes and no. Every employer must keep an accurate record of any tips they receive. ((Labor Code, § 353.)) So, if a customer leaves a tip on a credit card and the employer receives that tip, the employer is required by law to keep a full and accurate record of the tip for any time that the tip remains in the employer's possession. The employer is not, however, required to track tips you receive directly.

Tip Pooling: Is it legal?

It is legal for an employer to pool tips. ((Leighton v. Old Heidelberg (1990) 219 Cal.App.3d 1062.)) This means that an employer may require you to share your tips with the bartenders, busboys/busgirls, and other employees. ((Etheridge v. Reins Int'l Cal., Inc. (2009) 172 Cal.App.4th 908.))In fact, courts seem to favor tip-pooling, stating that "sharing can only promote harmony among the employees, provide a peaceful environment in which to work and improve service to the public." ((Id. at p. 1072 fn. 6.))

It is even legal for your employer to include your supervisors in this tip pool. ((Chau v. Starbucks Corp. (2009) 174 Cal.App.4th 688.)) The employer, however, may not receive any money as a result of the tip-pooling, even if the employer provided services directly to the customer.

What are the consequences of employers violating tipping laws?

In general, a violation of California's tipping laws is a misdemeanor. ((Labor Code, § 354.)) It is punishable by a fine of $1,000 or by imprisonment of up to sixty days. ((Id.))

Additionally, violations of these rules give employees a right to bring a claim for unpaid wages. They can do this in one of two ways:

  • Through a lawsuit, or
  • By filing a wage claim with California's Division of Labor Standards Enforcement (DLSE)

Filing a lawsuit.

A lawsuit is a complaint filed in court. They can be expensive, but if your damages are high enough there are lawyers that will take your case on a contingent-fee basis. In those situations, the lawyer will take an agreed-on percentage of whatever you win.

Lawsuits have their pros and cons. They are more expensive than a wage claim with the DLSE and they're more time-consuming. But these factors can sometimes incentivize higher settlements.

Additionally, a lawsuit in the courts provides procedural safeties to employees. The DLSE, for example, is not required to follow formal rules of evidence. It may also be difficult for employees to obtain evidence to advocate for their position. In court, on the other hand, employees go through a process called "discovery" where they can seek a wide range of documents and evidence from their employers concerning matters that are relevant to their case.

Interestingly, a lawsuit to recover tips is not an unpaid wage claim under the California Labor Code. ((Lu v. Hawaiian Gardens Casino, Inc. (2010) 50 Cal. 4th 592.)) Rather, because tips are the sole property of the employee, the employee must file their lawsuit as a claim for conversion or unfair competition. ((Id. at 603–604.))

Overall, however, the wisdom of filing a lawsuit will depend on the specific facts of your case. Your best option is to speak with a lawyer about the details of your case.

Filing a wage claim.

You may file a claim with the Division of Labor Standards Enforcement's (DLSE) if you have a claim for :

  • Unpaid wages.
  • Unpaid overtime.
  • Unpaid commissions.
  • Unpaid bonuses.

Within thirty days of your filing, the Deputy Labor Commissioner (“deputy”) will notify the parties of the next step. At this point, the deputy will decide whether to refer your complaint to a conference, refer your complaint to a hearing, or dismiss the claim.

If a conference is scheduled, notification will be sent to both parties. The purpose of the conference is to determine whether the issue can be settled without a hearing. If the case is not resolved at the conference, the deputy will determine the appropriate action with regard to the claim, usually referral to a hearing or dismissal (if there is not a legal basis to proceed).

If a hearing is scheduled, the parties will receive a Notice of Hearing which will set the date, time, and place of the hearing. You are allowed to present evidence and testify on your behalf. You may also arrange for witnesses to attend, or you can compel their presence. A decision will be issued on your case within fifteen days of the hearing. You may appeal this decision

Final Thoughts

Working as a tipped employee in California is a great way to earn money. In large part, this is because the tips you earn belong to you, although you may have to share them with other tipped employees, in addition to your minimum hourly wage.

Helpful links.

The form for filing a wage claim can be found here:

  • http://www.dir.ca.gov/dlse/HowToFileWageClaim.htm

Instructions for filing a wage claim may be found here:

  • http://www.dir.ca.gov/dlse/Policies.htm
Categories: Wages