Tipping Point: Restaurateurs Must Take Steps to Avoid Costly Penalties

June 16, 2014

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It is impossible to order a cup of coffee or sandwich without being confronted by a ubiquitous jar labeled "tips for tuition," "tipping isn’t just for cows," or some such other catchy phrase. While many patrons smile and happily drop their spare change in the tip jar or leave a gratuity following a meal, the seemingly selfless act of tipping can lead to unintended consequences for restaurateurs who are either unaware that Massachusetts closely regulates tips, or have implemented unlawful tip sharing procedures. These unintended consequences may include the imposition of multiple damage awards, and civil and criminal penalties for unwary restaurateurs who violate Massachusetts General Laws c. 149 § 152A (Act.)

The far reaching impact of the Act is demonstrated in the 2012 case of Matamoros v. Starbucks Corp. In this class action lawsuit, a group of coffee baristas brought and won a lawsuit against the Starbucks Corporation over the distribution of tips from the "tip jar" placed alongside the store's cash registers. Under Starbuck’s policy, tips from the collective tip jar were distributed to workers, including workers who had managerial responsibilities for Starbucks as "shift supervisors." In finding for the baristas and against Starbucks, the federal appellate court held under Massachusetts law that no employee with "managerial responsibilities" could participate in Starbuck’s tip sharing procedure, even though the lion’s share of the shift supervisors’ day to day work involved the same job function as the baristas, serving Starbuck’s guests.

As applied to restaurants in Massachusetts, the Act mandates that management may not keep, demand, request, or accept any portion of a tip given to wait staff or a service bartender and prohibits management requiring or distributing tips or service charges to anyone who does not fall into one of these two categories. Restaurant management may, however, require that wait staff and service bartenders pool or share tips or services charges with other employees who fall into one of these categories, but mandates that all tips or service charges shall be paid by the end of the same business day.

A "tip" under the Act is broadly defined as "a sum of money, including any amount designated by a credit card patron, a gift or a gratuity, given as an acknowledgment of any service performed by a wait staff employee or service bartender." Most mandatory service charges imposed by many restaurants, must be treated the same as tips.

Under the Act "wait staff" is a broad category of employees which includes servers, bus people, and counter staff, who: (1) serve beverages or prepared food directly to patrons, or who clear patrons' tables; (2) work in a restaurant, banquet facility, or other place where prepared food or beverages are served; and (3) have no managerial responsibility. "Service bartenders" are employees who prepare alcoholic or nonalcoholic beverages for patrons to be served by another employee, such as a wait staff employee. Stated plainly, the Act allows tip pooling or sharing or "tipping out" between servers, counter people, bus people and all bartenders, but specifically excludes any individual with "managerial responsibility" no matter how slight, as well as those individuals not specifically included, such as doormen, cooks, hostesses, and expediters.

As evidenced in the Starbucks case, and a number of other recent lawsuits and settlements, restaurateurs who violate this law are subject to far greater liability than the wrongfully withheld tips. Under the Act, an employee, and often an entire class of employees, (think your entire front of house staff for the last three years,) may seek up to three years worth of prior unpaid tips, multiple damages equal to three times the wrongfully withheld tips, as well as their attorneys’ fees and costs. Additionally any restaurateur who violates the Act, even if he or she does so innocently, may be liable to the Commonwealth for fines of up to $25,000.00 and criminal penalties. Put into context, the judgment against Starbucks in the barista case was slightly over $14 million dollars.

Courts have ruled that the Legislature's intent in passing the Act was to ensure that service employees receive the tips, gratuities, and service charges that customers intend them to receive. With the potential for huge judgments and onerous civil penalties at stake, unless and until the Act is amended restaurant management should, at a bare minimum implement these practical suggestions regarding tips and service charges:


1. Do not allow restaurant employees with supervisory responsibility, no matter how slight, to share in tips earned by wait staff or service bartenders;

2. Have a written tip pooling/sharing policy that excludes individuals who are not wait staff or service bartenders in place and ensure it is followed by all employees;

3. Pay out pooled tips only to eligible employees and on the same day the tips were earned; and finally

4. Hold regular trainings with managers, supervisors, and employees to ensure compliance with the Act and your individual restaurant’s tip sharing policies.


If you carefully follow the mandates of the statute and implement these simple suggestions, you should find that compliance with the Act will only enhance the service your guests receive.

by: Mark A. Tanner

BusinessWest
June 16, 2014

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