March 23, 2023 Breaking News, Latest News, and Videos

Legal View: The Intricate Art of Tipping:

By Zachary Cantor, Principal, Cantor Law

The next time you go out to eat, the most complicated part of your meal may be how to figure out the tip.

For the past several years restaurant owners and employees have tangled over low wages, medical coverage and whether to divvy up tips. To diners, that’s left a confusing puzzle of arithmetic at the bottom of the bill, which can include a 3 percent medical insurance surcharge, a tacked-on 20 percent service charge – and sometimes even a line after that seeking a tip.

It’s enough to make you start cooking at home again.

A ruling from the 9th Circuit U.S. Court of Appeals in March made tipping more complicated for everybody in the restaurant industry. There are hundreds of restaurants in Santa Monica; about 300 belong to the Chamber of Commerce. So it’s easy to see how the ruling affects many people and their families.

The question for the court seemed simple: could restaurant employees in the “chain of service,” such as servers and busboys, be required – or even allowed – to share their tips with back of the house staff such as chefs, line cooks and dishwashers. The Court’s decision: Tips belong to those in the chain of service. Thus, restaurants using a tip pool will need to ensure that none of their back-of-the-house staff – line cooks, dishwashers, expeditors, or any other staff that may not fall within definition of “customarily and regularly tipped employees” – partake in sharing the tip pool.

Called “tip-pooling,” the practice is, at its best, intended to share the benefits of good service with the team of people who directly contributed to a diner’s experience. At worst, it’s slyly used to ease the increasing costs of doing business—and to make up for the increasing minimum wage – for employees who may not be entitled to participate in the tip-pool.

The 9th Circuit’s decision is still open for revision or appeal. Just to be clear, some tip pooling is permissible, but not to the extent that some restaurateurs are pushing it. Some Los Angeles restaurant owners have tried to redistribute as much as 50 percent or more of waiters’ tips to other staff to reduce their own out-of-pocket costs. Aside from strict limits on who can participate in a tip-pool, what little law that exists on a reasonable amount to be distributed to back-staff at least makes clear that anything close to 50 percent is illegal.

California doesn’t let restaurants pay wait staff less than minimum wage. Some states do, and consider tip income as part of meeting the minimum wage requirement.

That’s why California law does not explicitly prohibit tip pooling, only requiring that an employee’s contribution to the tip pool must be reasonable, fair and equitable. The state’s labor code does not currently contain any statute that directly resolves the question of what counts as reasonable, fair or equitable. However, an opinion letter from the Labor Commissioner in 2005 set some parameters, stating that a “tipping pool policy was permissible where it provided that employees receiving the tips contribute 15 percent of the actual tips to the tip pool.”

A California Appeals Court justice in 2009 also provided guidance on what’s considered a reasonable and fair tip pool percentage, reasoning that a tip reflects the efforts of everyone who contributed to the dining experience; and, therefore, employers could force wait staff to contribute to a mandatory tip pool. The case, Etheridge v. Reins International, involved a restaurant employer who based tip pool requirements on the restaurant’s gross sales. The plaintiff in Etheridge was forced to pay half of his tips into the restaurant’s involuntary tip pool. The appeals court justice expressly opined that a 50 percent requirement “would appear to be an amount well in excess of any common industry practice for tip pool contributions.”

One way restaurateurs are trying to escape the tipping dilemma is by eliminating tipping and adding a 20 percent service fee to a diner’s bill. This is legitimate, and puts the employer in control of that money, which is taxable; and it can be passed along to all staff by whatever percentages the owner decides. But, it may not incentivize the best service or leave the customer feeling validated.

Moving forward, diners may take more interest in how much their server receives from the tip. More importantly, restaurant owners should review their tip policies — particularly if they have a tip-pool arrangement — and make sure they are complying with recent changes in the law. And restaurant employees should also be aware of their rights, and make sure that they are being treated fairly and legally for their hard work.

Zachary Cantor is principal attorney of Cantor Law of Santa Monica: info@cantorlawyers.com or 213.674.0325.

in News
Related Posts

Former Bank Building in Santa Monica Becomes a Food Destination with Addition of Katsu Bar

March 23, 2023

March 23, 2023

Katsu Bar joins Paderia and Oakberry in the transformation of the 3032 Wilshire building By Dolores Quintana Katsu Bar has...

Survey: Should Officials Remove Barriers to Outdoor Dining?

March 23, 2023

March 23, 2023

The COVID-19 pandemic drastically changed the way we live our lives, and one of the most significant impacts has been...

Gasolina Cafe Owner, Sandra Cordero, to Open New Tapas Bar in Santa Monica

March 23, 2023

March 23, 2023

Tapas bar expected to open late spring in former Heroic Italian space at 516 Santa Monica Boulevard  Sandra Cordero, the...

California’s AB 1217 Could Supersede Costly Outdoor Dining Permits Proposed by Municipalities

March 22, 2023

March 22, 2023

Legislation would preempt local ordinances and preserve regulatory flexibility for struggling neighborhood restaurants By Sam Catanzaro A new bill proposed...

Emerging Artist Jesse Liu Opens First-Ever Exhibition in Venice Gallery

March 22, 2023

March 22, 2023

“Spring Fever” currently on display at Yiwei Gallery By Keemia Zhang Local artist Jesse Liu has opened her first solo...

Santa Monica Place Invites LGBTQIA+ Artisans to Apply for Made With PRIDE Marketplace

March 21, 2023

March 21, 2023

Partnering with Streetlet, the marketplace will take place each weekend in June and showcase local goods made in Southern California....

Santa Monica Councilmember Phil Brock Appointed to National League of Cities Council on Youth, Education, and Families

March 21, 2023

March 21, 2023

Brock to collaborate with group of local leaders to develop and guide programs for communities across the country Santa Monica...

Santa Monica Receives $70,000 Donation From Kiwanis Charities for Scoreboards in Two Parks

March 21, 2023

March 21, 2023

Donation will fund the installation of new scoreboards at Historic Belmar Park and Los Amigos Park The Santa Monica City...

Should Santa Monica Close the Airport?

March 21, 2023

March 21, 2023

Santa Monica City Council recently voted to begin the process of closing Santa Monica Municipal Airport. The decision was kick-started...

City Council Puts Plan for Use of Parking Lots for Affordable Housing in Motion

March 21, 2023

March 21, 2023

Sites are located at 1217 Euclid Street, 1211-1217 14th Street and 1146 16th Street By Dolores Quintana ​​During the Santa...

Santa Monica Warns Residents of Crypto Ponzi Scheme

March 21, 2023

March 21, 2023

City says 30 + households in Santa Monica have reported being victimized by CryptoFX, LLC Over 30 households in Santa...

Man Arrested for Sexual Assaults Targeting Homeless Victims

March 20, 2023

March 20, 2023

Anthony Pittman faces rape charges in connection to series of sexual assaults A West Hollywood man has been arrested in...

SMa.r.t. Column: Going Bare

March 20, 2023

March 20, 2023

(part 3 of 3 articles) Every City faces periodic interruptions to its normal life. Some interruptions in our City are...

Santa Monica Mall Owner, Macerich, Finds Way Out of Retail Property Crisis

March 19, 2023

March 19, 2023

Move comes amidst a crisis for retail property owners, with loans coming due for refinancing with much higher interest rates...

Historic Santa Monica Property “The Witbeck House” Listed for Sale at $22.5M

March 19, 2023

March 19, 2023

Greene & Greene-designed home features 26,000+ square foot lot with five bedroom home A historic property known as The Witbeck...