Legal news and tips for employees

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


Employer taking employee tipsSome 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.

  • Newbreed Law

    I have worked for my employer for 5 years, I was hired as a server/waitress. I work for a small business owner, it is a 1 location restaurant + procedures there very different from restaurant chains Ive previously worked for. Over the last few years, I have become proficient as a cook as well and most days I am required to juggle cooking and serving tables. Recently business became very slow and my boss, the business owner and myself, were the only staff, putting in 10-14 hour days. Wont get into rest + meal breaks… But about 4 months ago, she/boss started including herself on tip pool and she would split tips between us, at business close. However this last week, she changed the way wages will be paid, to a weekly salary wage that would have tips calculated into our pay and tips would be educted from that weekly rate? Is that legal? She claims it is. Also, can employer/owner include themselves in the tip pool, if they do occasionally help w/ table service?

  • Evelyn

    I work as a server and they want to start taking 30% percent of our tip on every pay check is this legal ?

  • Maya

    I work in a restaurant in Hawai`i all of our customers pay a 20% gratuity not a tip that they decide how much to give but they can choose to give more. Recently they’ve been discussing that they will not give the waiters tips anymore. But instead the company will keep it. In return they will raise the wage. But we don’t know by how much. I am the hostess, I currently get about half of the tip a waiter gets. I get $12 an hour and when I calculate my tip average into it. I am get roughly $17 an hour. I don’t think they will raise out wages that much. But even if they do or not, is that illegal to charge gratuity but not give it to us at all? Don’t all customers assume that it’ll go to the staff? And not the company?

  • Peter

    My employer at my restraurant wants to deduct 3% of our individual sales ( each waitress ) to help pay more for a cook. Is this legal?

  • lilly

    i work in a restaurant, and the owners take our credit card tips, and deducts out what they want and they take out a percentages for the credit card use, is this legal

  • John

    How about an employer taking all the tips, and donating them. Giving the customers no way to tip the employees. In return reduces her taxes.

  • sandi

    I woek in a restaurant as a waitres …Can my employer take tips away from us?….for example.. there is a tip jar in front of the register and those tips dont go to any of employees ..the boss keeps that legal?

    • Eugene Lee

      Not at all. Managers, owners and supervisors cannot take tips. The law treats that as theft.

  • Star1975

    I work at a semi-fancy restaurant in California. I have, over the years, accumulated several “regular” customers who continue to come in to the restaurant and request to sit in my station. They know I have kids and go out of their way to leave nice tips for me and my family. Consequently, I often make more money than my colleagues. Recently, on several occasions, and during the entire Christmas season, when tips are the highest, the manager has made us ‘pool’ our tips. I immediately stated that I didn’t want to pool tips, especially with the newer servers who are not as good at selling as the ones who have worked at the restaurant for years. The manager stated that if we didn’t like it we could go home. And then we would also, consequently, be taken off the schedule. Is this even legal? Can a manager ‘make’ us pool tips at his/her leisure? I even had to put cash side tips in to the pool that I would receive from customers who would tell me to buy something nice for my kids..! Please Help.

    • Eugene Lee

      Generally speaking, the answer is yes, an employer is allowed to implement (i.e., impose) a tip pool on its employees, so long as the tip distribution is reasonable (though what that means exactly remains open for debate).

  • Holli

    I am a dog groomer and work in a grooming shop that pools my tips and 3 other groomers tips. The bathers get their tips included in our pool.

    I don’t want the pool…..I want my own tips

    The owner buys our lunch with our tip money and then keeps the rest.

    Can I regain any of this money back? Or how do I moving forward get my tips instead of pooling?

  • grudge

    I work at a restaurant where an employee was recently promoted to manager, however they are still scheduling themselves for serving shifts and taking tips? is that legal? while they are scheduled as a server/cashier they are still performing managerial duties.

  • me

    can employees insist on an employer allowing patrons to tip on credit card slips?

  • Cherry

    My employer does not give me detailed info on how much we are paid from service charges. It is just lumped in with our regular gratuities on our checks. I would like to get detailed break down on how I am getting paid, is that a reasonable request?

  • z

    im a waiter, we pool our tips and receive cash and credit tips on our check every 2 weeks. we share 30% with the chef and prep cook and on the check it only says credit tips. but they say they add them up and put it like that. also the owners sons who pretty much run the place every day also receive tips when he’s working. this all legal?

  • Carolinee

    What is the maximum percent that can be required for you to “tip pool” from your sales as a server?

  • jose f

    i work at a frozen yogurt store. Recently, our store manager has been receiving part of our tips and says she is entitled to receive them because she is working on the clock. The thing is that she hardly ever comes out of the back to assist customers, only when the person up front goes on their 10 minute break. Is she allowed to do that? And if not, how can i go about fighting against this with the upper management?

    • Tiffany

      Because they are technically part of the working staff, yes, I think they can.