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legal news & tips for employees published by Law Office of Eugene Lee


Tip-Pooling – Can My Employer Take My Tips and How?

Some History

For better or worse, tipping has become an accepted part of American commerce. It is a practice that first emerged in the late 1800s. In 1917, the California legislature passed a law for the first time prohibiting employers from taking any portion of employees’ tips. However, the courts struck down the law as a violation of constitutional due process. The legislature tried again in 1929 and this time succeeded. However, now the law permitted employers to credit tips against employees’ wages, i.e., use tips in place of wages. It wasn’t until 1975, after repeated failed attempts, that the legislature was finally able to pass a law that prohibited the practice of “tip credits”.

Labor Code § 351

California Labor Code § 351 now reads:

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 hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.

An employer that permits patrons to pay gratuities by credit card shall pay the employees the full amount of the gratuity that the patron indicated on the credit card slip, without any deductions for any credit card payment processing fees or costs that may be charged to the employer by the credit card company. Payment of gratuities made by patrons using credit cards shall be made to the employees not later than the next regular payday following the date the patron authorized the credit card payment.

Interestingly, the federal law – the Fair Labor Standards Act – continues to permit “tip credits”, though with restrictions. As usual, California laws continue to offer greater employee protections than their federal counterparts. While federal laws usually trump or “preempt” state laws, courts have ruled that this is not the case with the FLSA and the California Labor Code. Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 567; Skyline Homes, Inc. v. Department of Industrial Relations (1985) 165 Cal.App.3d 239, 250-251.

Section 351 seems pretty simple and straightforward. However, it also left open some important unanswered questions that the courts took it upon themselves to answer.

Can My Employer Take My Tips?

Yes. . .

Many industries, particularly the restaurant industry, have a “house” practice of mandatory tip-pooling, in which the employer takes employees’ tips, pools them, then allocates the money to its employees as it sees fit. Tip pooling is nowhere mentioned in section 351 and that would therefore seem to make it an illegal “taking” of the employee’s “sole property”. However, the courts engaged in some fancy analysis to conclude it is permissible, so long as the distribution is “fair and reasonable”. Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062. So to that extent, yes, your employer can take your tips away from you.

. . . and no

But the employer can’t take any part of your tips for itself either. Even if your employer sets up a mandatory tip pool, it and its “agents” (meaning any employee with managerial/supervisory functions) are prohibited from getting any of the money from that pool. That is clearly stated at the very beginning of section 351: “No employer or agent shall collect, take or receive any gratuity or part thereof . . .”.

So Who Can Participate in the Tip Pool?

Here is where things get tricky because the courts seems to be all over the place. Section 351 makes it clear that employers and their supervisory/managerial agents cannot get any of the money from a tip pool. But it is unclear what other employees can. Can the tip pool monies be allocated to dishwashers? Busboys? Sushi chefs? Janitors? Accountants? Security guards? Etc. Where do you draw the line?

Since 1990, the bright-line rule was that only those employees who are involved in “direct table service” are entitled to participate in the tip pool. Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062. However, that all changed recently.

In March 2009, a court held that employees who did not engage in direct table service could still participate in the tip pool, so long as they were in the broader “chain of service”. Etheridge (Brad) v. Reins International California, Inc. (2009) 172 Cal. App. 4th 908. So, for instance, bussers who clear away plates after a customer has already left might not qualify as having engaged in “direct table service” but would qualify as having been involved in the “chain of service”, and so could participate in the tip pool. Another court held that bartenders could participate in tip pools, even if they never directly brought drinks to the customer’s table (although there the court stuck with the old model and ruled that this was “direct table service”). Budrow (Aaron) v. Dave & Buster’s of California, Inc. (2009) 171 Cal. App. 4th 875.

In June 2009, a court reversed an $86 mil. judgment when it held that supervisory/managerial agents could share in “collective tip boxes” because they were not “tip pools” but “tip allocations”. Chau v. Starbucks Corp., 174 Cal. App. 4th 688 (Cal. App. 4th Dist. 2009). I call this one the “Starbucks exception” because it only seems to apply if you work at Starbucks.

So the question of which specific employees can participate in a tip pool remains up in the air, to be answered on a case-by-case basis. The key for the courts is the intent of the tipping customer. If the tipper (arguably) intended that a type of employee share in the tip, then they are participants in the “chain of service” and/or “direct table service”. An accountant or security guard probably would not qualify under this standard, but a bartender and busser probably do.

My Employer Has Violated the Tip Laws, Can I Sue?

Yes you can. At the moment, it is unclear whether you have a private right of action under section 351. The California Supreme Court is considering that question at the moment. Lu (Louie Hung Kwei) v. Hawaiian Gardens Casino, Inc., 2009 Cal. LEXIS 5505 (Cal. May 26, 2009).

However, as your lawyer can explain to you, you can still probably bring a claim for violation of the California Unfair Competition Law (California Business & Professions Code 17200 et al.) and/or for penalties under the California Private Attorney General Act (California Labor Code § 2698 et al.). But I recommend you leave that to your lawyer.



  • George

    So Who Can Participate in the Tip Pool?
    Here is where things get tricky because the courts seems to be all over the place.

    And here is when corruption on a federal level bleeds over to corruption on a state level.

    California labor code does not even mention tip pools. How can we even discuss tip pools without knowing what tip pools are?

    Federal regulations define tip pools in great detail.

    CFR 531.54 defines tip pooling as,

    “Where employees practice tip splitting”

    “Where the waiters give a portion of their tips to the busbly”

    “Where an accounting is given to the employer”

    “Where pooled tips are redistributed to the employees upon some basis which they have mutually agreed among themselves”

    To better understand what “tip pooling” actually is, it is important to understand what tips are.

    Federal regulations again go into great detail in defining what tips are.
    CFR 531.52 explains, among other things, that under federal law, tips are that which is received as money belonging to an employee which “he may use as he chooses free of any control of the employer”.

    While Califoria law addresses gratuities, Federal laws address tips. Therefore it is incorrect to suggest that Calfifornia laws concern themselves with tip pools because California Labor Laws concern themselves with gratuities, rather than tips.

    Now back to the question at hand.

    Who can participate in the tip pool?

    Since California Labor Laws are silent on tip pools, we must turn to federal laws and regultions.

    Before we can understand who can participate in a tip pool we should fist find out whether or not tip pooling is something certain people can participate in.

    Again, federal regulations define tip pooling was where the waiter’s give a portion of “THEIR” tips to the busboy.

    This definition of tip pooling seem to suggest that since tips are refered to as the waiter’s property, only the waiters should be determining who can participate in their pool.

    Federal regulations go on to define tip pooling as where employees practice tip pooling. This definition seems to imply that tip pooling is something certain types of employees do rather than something certain types of employees may participate in.

    Federal regulations go on to state that tip pooling is where an accounting is given to the employer. Again, tip poolijg is not defined as something certain types of employee may participate in, in fact, this definition of tip pooling seems to clarify that tip pooling is where employees determine who will receive a share of tips and what amount they will recieve from the pool. An accounting, as refered to in CFR 531.54, is where someone determines matters like who is receiving tips from the pool and how much each is receiving.

    The regulation goes on to state that the “accounting” which is given to the employer is in furtherance of a tip pool whereby the employer redistributes the tips to the employees upon some basis by which they have “mutually agreed” among themselves.

    So, according to federal regulations, tip pooling is where tips are pooled among those who have mutually agreed on the basis by which tips will be pooled.

    Clearly tip pooling is not something certain types of employees may participate in. Instead, tip pooling is defined under federal regulations as something certain types of employees may practice. What this practice encompasses is determining such matters such as who will share in tips and what amount they will receive. The point I am making is, federal laws seem to indicate that tip pooling is the governing of tips.

    Federal laws do not define tips as something certain types of employees are eligible to participate in, but rather, something cetain types of employee cannot be prohibited from doing. What federal laws state is that Nothing in this section shall be construed to prohibit an employee who customarily and regularly receives tips from governing and thus pooling his tips.

    The problem is, while federal regulations are clear on this issue, federal judges are ruling that employers are not prohibited from requiring tip pooling. That’s why the California judges are ruling that employers are not prohibited from requiring the pooling of tips.

    While federal laws state clearly that nothing is to prohibit the pooling of tips among employees who customarily and regularly receive tips, judges are totally ignoring the fact that “the pooling of tips” is defined under federal regulations as the governing of tips by an employee who customarily and regurly receives tips which federal laws cannot be construed to prohibit.

    I guess federal judges are getting those free dinners too.

  • Robert

    We are rolling out a pooled tip system which will have all tips on the staffs pay check.  
     
    In a system where all credit card tips are on the employee’s paycheck how are cash tips distributed?  
     
    It is my understanding in California all cash tips must be distributed within a couple of days.
     
     Does the pooling system exempt this? 
     
    Meaning, can cash tips also be distributed on a paycheck? Or does a separate system need to be place for the cash tips?

  • George

    I’ve worked for tips for over 33 years and not one year of those 33 did I get to keep what customers actually gave me. I was forced to share my tips with workers, who for some reason, never contributed enough tips to the pool so that I could get back what I had put in. I have always worked in places where the tips are pooled and divided equally among all similar type workers. The problem is, while I always lost money from this system, I was told it’s legal for my employer to treat my tips this way.

    I have searched for over 15 years for a law that says this treatment of my tips is legal, however, I have not found one law that indicates that this treatment of my tips is legal. While both my state labor laws and federal labor laws mention tip pools, not one word suggests that it is legal for my employer to take my tips from me so that others can have an equal share of my tips.

    Federal laws state,

    29 USC section 203(m)
    Nothing in this subsection shall be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips. Is this supposed to be the law that says my employer can take part of my tips and give them to other employees?

    Both tips and tip pools are defined under federal regulations. CFR 531.52 defines tips while CFR 531.54 defines tip pools. So do these regulations explain that my employer can take part of my tips away  from me and share them with other workers?Here are the regulations. If you see anything that suggests that my employer is allowed to steal my tips from me so that he can share part of my tips with other workers, please point it out to me.

    § 531.52 General characteristics of “tips.”
    A tip is a sum presented by a customer as a gift or gratuity in recognition of some service performed for him. It is to be distinguished from payment of a charge, if any, made for the service. Whether a tip is to be given, and its amount, are matters determined solely by the customer, and generally he has the right to determine who shall be the recipient of his gratuity. In the absence of an agreement to the contrary between the recipient and a third party, a tip becomes the property of the person in recognition of whose service it is presented by the customer. Only tips actually received by an employee as money belonging to him which he may use as he chooses free of any control by the employer, may be counted in determining whether he is a “tipped employee” within the meaning of the Act and in applying the provisions of section 3(m) which govern wage credits for tips.

    § 531.54 Tip pooling.
    Where employees practice tip splitting, as where waiters give a portion of their tips to the busboys, both the amounts retained by the waiters and those given the busboys are considered tips of the individuals who retain them, in applying the provisions of section 3(m) and 3(t). Similarly, where an accounting is made to an employer for his information only or in furtherance of a pooling arrangement whereby the employer redistributes the tips to the employees upon some basis to which they have mutually agreed among themselves, the amounts received and retained by each individual as his own are counted as his tips for purposes of the Act.

    Here is the thing. According to federal regulations, federal laws are stating that nothing is to prohibit me from pooling ”money belonging to me which I may use as I choose free of any control of the employe.”

    According to federal regulations nothing is to prohibit where I and other employees “mutually agree on the basis by which our tips will be redistributed through a tip pool.”

    My point is, while the regulations in no way suggest that my emplyer may take my tips away from me so that he can share them equally with other employees, the regulations DO explain that I can use my tips however I choose free of any control of the employer. The regulations DO explain that I can mutually agree on the basis by which my tips will be redistributed through a tip pool.

    Again, If there is something here that I am missing, please point it out to me. Federal laws, in conjunction with the regualtions which define the terms used by the law,
    totally contradict the idea that it is legal for my employer to take my tips away from me so he can use them to equalize the tip incomes of my co-workers and I.

    • http://www.openinterns.com/ Rachelisallen

      HI George…………….

      I agree with your thought.Thank you for your sharing.

    • Tiffany

      I think that the law is trying to say that while tip pooling is legal, it can only be done if all the people participating in the tip pool do so voluntarily, or else those who do not wish to do a tip pooling can simply keep their tips and those who want to do a tip pooling can do so with the other workers who want to tip pool.

  • George

    Years and years pass and nothing is done to stop employers from stealing the tips customers are presenting us workers in the service industry. Judges continue taking bribes to misinterpret our labor laws so that business owners can steal the billions of dollar customers are tipping their employees.

    I have been speaking out against employer tip theft for over 10 years. How long must I wait to see justice? Does anyone care?

    Our hourly wages have systemaically been reduced to nothing through efforts by the federal reserve to promote a steady rate of inflation. Every year our wages become worth less and less as the dollar is intentionally devalued by our Federal Reserve. Our manufacturing jobs have went overseas and many of the jobs we are left with force us to beg for tips just to get by. On top of that, the tips we have been reduced to beg for are being stolen from us by our employers.

    Is this the way we want our nation to treat it’s people?

    When an employee receives a tip, it should be respected as his private property. If customers want others to have a tip, they should tip each one individually. This way there is no confusion over how much in tips each is entitled to. This way, our laws can actually protect the tips an employee has received.

    When tips are errantly viewed as the property of those employees whom customers might have intended to tip, there is no way to substantiate who the tips belong to and what amount actually belongs to them. There is no way to protect an employee to the tips he has been given when we have no way to substantiate how much each one is entitled to.

    If you tip an employee it should be regarded as his and his alone. This way we know exactly how much he is entitled to and his tips can be protected. If tips are erratnly regarded as that which belongs to all those the customers might have intended to tip, there is no way to substantiate who is entitled to the tip and how much  each is entitled to.

    Simply put, if we refuse to regard tips as the property of the individual who was physically presented the tip, the customer’s tip cannot be protected from the greedy hands of business owners. Business owners can take tips away from an employee when tips are errantly viewed as that which does not belong to the individual who was given the tip.

    In order to insure that the recipient of your tip is protected to your tip, tips must be regarded as the property of the individual you’ve chosen to tip, not the property of some vague and ambibuous group of workers whom you may have intended to tip. The vagueness and ambiguity of such a system  makes it impossible to properly protect those workers you;ve intended to tip.  

    How can a waitress know who you want your tip shared with? How can a judge know who you want your tip shared with? How can anyone know exactly how you want your tip divided up?

    The only way to view tips is to view them as the property of the individual who was physically  presented the tip. Any other view of tips leaves the ownership of those tips an impossible task to sort out.

    For those of you who want your tip shared, just give your tip to the owner of the business. it’s going to end up in his pocket your way. You see, since you refuse to designate who your tip is for, the employer is going to use it to pay his employees who don’t normally receive tips. This way he can use your tips to save himself the expense of paying his employees higher wages. Those of you who want your tip shared are going to have your tip stolen because there is no way to substantiate who you wanted your tip shared among and how much you wanted them each to have. Since you have neglected to inform anyone of how you want your tips divided up, and since you don’t want the individual who you phyically presented your tip to lay claim to the tip you gave, the owner is free to use your tips to reduce his staffing costs. The more employees he shares your tip with, the lower his staffing costs will be. The lower his staffing costs are, the more the owner can put in his own pocket.

    What’s to stop an empoyer from using your tips to simply pay all his employees when you refuse to designate who your tip is intended for and when you refuse to accept the idea that your tip belongs to the employee who you gave it to? All you are doing when you suggest that your tip should be shared is allowing the owner of the business to take it away from the employee whom it was presented. After it’s taken away, who else can prove it belongs to them? If no other employees can prove that they are entitled to a specific amount of your tip, then their employer is free to use it in a manner most beneficial to the employer.

    While you may not mind the idea of the business owner helping himself to your tip, there are people in this country that don’t want business owners stealing their tips. Your rights mean nothing if it needlessly infirnges on the rights of others. If you want your tips shared, share them yourself. You can’t expect other people to give up
    their rights simply because you”re to lazy and uncaring to designate who your tip belongs to. If you want business owners to pocket your tip, then give your tip to the owner, not one of his employees. For customers who don’t want business owners stealing their tips, they should be able to designate who their tip belongs to simply by physically presenting their tip to the person whom they want to tip.

    You see, what many people suggest is that a customers shouldn’t be able to designate who his tip is intended for. Those who say tips should be shared are preventing customers from desiganting who their tip belongs to. Those who say designation of who a tip belongs to should be reliant on who the tips was physically presented to are in no way interfering with the rights of those customer’s who want their tip shared.

    When tips are properly viewed as the property of the individual, customers who want their tips shared can have their way simply by dividing up their tips and presenting it to each employee they want to tip. The proper way to view tips does not interfere with their rights. However, when tips are errantly viewed as property which should be shared among all those whom the customer intended to tip, those customers who want to tip workers of their choosing are unable to do so.

    It’s about personal rights. Every customers should have the right to decide, for themselves who their tip belongs to. When tips are errantly regarded as that which is not intended for the individual whom it was given, customers are deprived their right to determine who their tips belongs to. When customers are prevented from determining who their tip belongs to, business owners are free to steal the money for themselves.

    That’s why business owners are paying off judges to rule that tips do not belong to the individual who physically was presented a tip. That’s why judges are making up lies and suggesting that all customers want their tips shared. That’s why judges are looking right into the eyes of a waitress and telling her that her tips do not belong to her.

  • http://pulse.yahoo.com/_IYBSUMNCIEWKBTBV5A6VIRHROQ kim

    I’m a sushiman and I’m a sushi restaurant corportion owner,because business is slow,I substitute a sushiman to  work at the sushibar.Can I receive or  share  the tips.

  • Aaron Frick

    Hi quick question can an employer who has their own work station in a restaurant have the tips left on the tables in the work station they are working in

    • rui bagina facebook

      Well, I think so. If the employer was serving the guests in that station in his own restaurant, during the guests full meal, Yes the employer, in my opinion it would also be fair for he to get his tips. He worked for it.

  • Malibuss6598

    I reccently got a new job at a familiar restaurant at the airport. The bartenders are to report how much tips they get on a daily basis and i have been told that their wages are reduced based on how much tips are. Is this legal and if not what can they do about it?

  • http://www.facebook.com/people/Skye-Bellantoni/612087839 Skye Bellantoni

    This answer might be some-where in comments but, thought this would be faster.
    In Norfolk VA. All tips paid by credit/debit the owner keeps. The owner also, makes possible employees/all employess sign a document given permission that the owner can do so. (My common sense and the law doesnt always align.) To me possible employees basicaly have to sign this document if they want to be hired.Is that threatening in itself or am I over thinking this already”? Also, is having employees sign this document even legal on its own? Lastly, a co-owner is also given portions of the tip pool with-in this business. From my readings thats illegal also.
    If anyone can give me information where I can get printed city laws stating this act or all acts are illegal I’d appreciate it. If you have a comment I’m all ears but, having legal documents to prove this is what I would prefer.
    Laters

  • http://www.facebook.com/mary.lanphear.3 Mary Lanphear

    A cashier is taking tip money for our service in the buffet are they allowed to pocket the money?

  • schacha

    Under a new policy implemented by management in a restaurant, in order to save labor hours- if we are cut (asked to get off the clock) and a table that we have been taken care of has food on the table, we are to transfer the table to another server but the tip belongs to us. If there is no food on the table the tip belongs to the server that the table was transfered to. The problem is the management is collecting the tip and on multiple occasions I have not received the tip. I have discussed this with management and have not received any action. I have been told that this is the policy and if I do not follow this I will be written up which may lead to my termination. I am documenting the days in which this occurs. Any advice.

  • schacha

    Under a new policy implemented by management in a restaurant, in order to save labor hours- if we are cut (asked to get off the clock) and a table that we have been taken care of has food on the table, we are to transfer the table to another server but the tip belongs to us. If there is no food on the table the tip belongs to the server that the table was transfered to. The problem is the management is collecting the tip and on multiple occasions I have not received the tip. I have discussed this with management and have not received any action. I have been told that this is the policy and if I do not follow this I will be written up which may lead to my termination. I am documenting the days in which this occurs. Any advice.

  • alysa

    so is there somewhere i can file for my tips since my boss didnt give the to me? she would seperate them every six months!! and on top of that there was only about 5 to 6 of us working for her and she would only give us like 40bucks every 6 months when we would get at least 10 bucks a day in our tip jar mind you this is a round table any ideas to help get my money she owes me? let me know please

  • patti

    My question is does the empoyer count the “tips”? Or is the employee with the supervision of a mamager/supervisor the one who count the tips? Where would I might the law regarding this?

  • Tiffany

    Actually, the law states that the tip is the sole property of the person who it was given to or left for… so nobody can take your tip, even if there is a policy of tip pooling, because it violates the law. It makes no sense to do a tip pooling anyway, since when people leave tips, they are meant for their server or the person they are given to only, usually based on how well the service was. So, if, say somebody is a very good server and receives large tips, and then somebody else gets small tips because they do a bad job serving, then the person who is doing a good job would lose money in tips because they would be split evenly. The only way tip pooling would be legal is if all the employees participating in the tip pool did so voluntarily. If anybody doesn;t want to participate, they do not have to, even if it is company policy. Read up on your laws.

  • Jane

    My job has been doing not so great things including stealing tips. They take 50% for them self and the other half goes to the servers and out of that half 6% goes to the hostesses.
    I don’t know what to do or who to report it to, I would like to remain anonymous for the fear of loosing my job.

  • Bob B

    If your employer puts a service charge of 19% on every check etc – and they take 1% to pay for credit card payments or some bs is that illegal on there part? I Mean as a customer your thinking that you are giving a 19% gratuity, but really only 18% is going to that person and the dam HOUSE IS TAKING 1 % – TELL ME I HAVE A CASE ??
    Funny to cause they just changed this – where now the full 19% does go to the employee etc – but what about all that past monies????? Do I have a case to sue? For myself? And what about other employees???? YEARS AND YEARS OF THEM STEALING- ????

    • Nada Surf

      You don’t because it is a service charge not a gratuity.