Karla Jameson was a server for the upscale Five Feet restaurant in Laguna Beach. The restaurant required servers to give 10 percent of their nightly tips to the floor manager. The floor manager supervised the servers, acted as host, greeted customers, set up the reservation sheet and seating arrangement, and assisted in servicing tables. Jameson gave the floor manager $40 to $50 a night.
The HR Management & Compliance Report: How To Comply with California Wage & Hour Law, explains everything you need to know to stay in compliance with the state’s complex and ever-changing rules, laws, and regulations in this area. Coverage on bonuses, meal and rest breaks, overtime, alternative workweeks, final paychecks, and more.
Employee Says Manager Can’t Take Tips
After a few months, Jameson resigned and sued Five Feet, arguing the restaurant’s tip-sharing policy violated a Califor- nia Labor Code provision that prohibits an employer or its agent from collecting, taking, or receiving a patron’s gratuity.
An Orange County jury sided with Jameson, finding she was illegally required to give up $1,075 in tips to Five Feet floor managers. Five Feet appealed.
Is Floor Manager an Agent?
A California appellate court upheld the verdict, finding substantial evidence that Five Feet’s floor managers fit the state law’s definition of an agent: any person (other than the employer) who has authority to hire or discharge an employee or to supervise, direct, or control the acts of employees.
The court observed that Five Feet’s floor managers had the following duties: 1) scheduling servers’ stations, disciplining servers, hiring employees, and recommending the discharge of employees; 2) supervising servers on a daily basis and assuming host duties at the same time; and 3) hiring servers without consulting management. Plus, floor managers had authority to discipline employees without the owner’s consent, and Five Feet’s training manual referred to floor managers as supervisors.
Because floor managers fit the definition of an agent, Five Feet was prohibited under the Labor Code from requiring servers to share tips with them.
Paying Tipped Employees
This case highlights some of the legal issues that come into play when your employees collect tips. Here’s a rundown of some important wage-and-hour rules to keep in mind:
- Tip pooling. California law permits tip pooling, but as the Five Feet case demonstrates, your management team must not share in the pool. According to the California Labor Commissioner, a tip-pooling policy must fall within these parameters to be legal: 1) the waiter/waitress can be required to share the tips only with other employees involved in direct service to the customer, such as a busboy, bartender, wine steward, or host who isn’t a manager; and 2) the waiter/waitress generally can be required to share no more than 15 percent of their tips with the busboy and five percent each with the bartender, wine steward, and nonmanagerial host.
- Tip credits. Five Feet pointed to a federal wage-and-hour rule that permits an employer to pay less than minimum wage to a tipped employee by including the tips the employee receives in the calculation of the employee’s wage. But the court said California’s wage-and-hour rules prohibit this practice.
- Credit card tips. If customers tip by credit card, you must pay the employee the full gratuity indicated on the charge slip no later than the next regular payday after the customer authorized the credit card payment. You can’t deduct any processing fees you may have to pay to your bank or the credit card issuer from the employee’s tip.