In April 2015, the Supreme Judicial Court of Massachusetts issued two important decisions providing guidance for employers on the scope of Massachusetts’s wage and hour laws. In one decision, the Court held that employers may institute no-tipping policies in the Commonwealth without violating the Tips Act; however, employers must provide notice to customers of their no-tipping policies in order to avoid potential liability for the failure to treat change left by customers as tips. In the other decision, the Court found that taxi drivers are not properly considered independent contractors under the Massachusetts Independent Contractor Law.

Meshna v. Scrivanos

In a case with far-reaching implications, the Massachusetts Supreme Judicial Court (SJC) unanimously ruled on April 10, 2015, that employers may institute no-tipping policies in the Commonwealth without violating the Massachusetts Tips Act, G.L. c. 149, § 152A. Further, the Court held that if the no-tipping policy is clearly communicated to customers, any change that is nonetheless left behind by customers cannot be considered a tip and therefore an employer is free to do what it wants with the change, including instructing employees to put the change towards future customer purchases or retaining the change. Meshna v. Scrivanos, No. SJC-11618 (April 10, 2015).

The appellee before the Supreme Judicial Court, Constantine Scrivanos, (an Ogletree Deakins client) is a franchisee of a large number of Dunkin’ Donuts restaurants. The majority of the restaurants have a no-tipping policy. Employers such as Scrivanos have a number of reasons for implementing no-tipping policies, including that tipping can put customers in an uncomfortable position, and many customers favor a no-tipping policy. The no-tipping policy at the stores in question is communicated to customers not only through the absence of tip jars on the counters, but also through signage and verbal instructions from employees, who are trained to return all change to the customers and inform them that they are not allowed to accept tips. 

Prior to the filing of the lawsuit, Scrivanos had not implemented a company policy concerning what employees were to do with any change left by customers despite the no-tipping policy, as employees were instructed and expected to return the change to customers. After the filing of the suit, however, “abandoned change” cups (akin to take-a-penny-leave-a-penny cups) were placed on the counters, and employees were instructed to place any change left by customers in those cups. Change from the abandoned change cups was then used towards purchases by other customers.

The lawsuit was filed by four employees who worked at stores with a no-tipping policy. They always earned at or above the full minimum wage—as opposed to the “tipped” employee minimum wage. Scrivanos also offers health benefits and a 401(k) plan to his employees, as well as advancement opportunities. The employees in the lawsuit claimed that the no-tipping policy at their Dunkin’ Donuts locations violates the Massachusetts Tips Act, which prohibits employers from demanding “any payment or deduction from a tip or service charge given to” a wait staff employee, service employee, or service bartender, and prohibits retaining “any tip or service charge given directly to the employer.” Specifically, the employees claimed that the no-tipping policy deducted from tips that they otherwise would have received absent the no-tipping policy. They also claimed that any money left behind by customers despite the no-tipping policy—including money left by customers in the abandoned change cups—still constituted tips, to which they were entitled.

The appeal to the Supreme Judicial Court followed a ruling by the trial court that no-tipping policies do not violate the Massachusetts Tips Act, and the appeal generated substantial attention. A number of parties, including the New England Legal Foundation and Dunkin Donuts Independent Franchise Owners, Inc., submitted amicus curiae briefs in support of Scrivanos’s position that no-tipping policies are legal and that any change left by customers despite such a policy cannot be considered a tip.

As the amicus writers pointed out, tipping issues are not limited to employers in the restaurant industry, and many employers adopt no-tipping policies for legitimate business reasons. No-tipping policies can prevent preferential treatment to those customers who can afford to leave significant tips. They also can ease the pressure and burden on other customers who are unsure of whether or how much they are obligated to tip. Further, many employers who do not permit tipping pay their employees a much higher hourly wage, providing a more stable source of income and benefits, and no-tipping policies can improve teamwork and decrease internal competition among those employees.

In deciding the appeal, the SJC considered two questions of law that had been certified for review by the trial court:

  1. Does G.L. c. 149, § 152A allow an employer to maintain a no-tipping policy?
  2. If a no-tipping policy is permitted under Massachusetts law, may an employer be liable under G.L. c. 149, § 152A if
    1. the employer fails to communicate the no-tipping policy clearly to customers, who consequently leave tips that are retained by the employer; and/or
    2. the employer clearly communicates the no-tipping policy to customers, who nonetheless leave tips that are retained by the employer?

In rendering its decision on these questions in favor of Scrivanos’s position, the Supreme Judicial Court relied on the language of the statute and the plain meaning of the words “retain,” “deduct,” and “given” to determine that the legislature did not intend to ban no-tipping policies. The Court reasoned that the language of the Tips Act applies to circumstances in which tipping is permitted and tips are actually given to wait staff, and the Tips Act prescribes how employers must handle those tips. The court concluded, “No language in . . . the Tips Act . . . prohibits an employer from imposing a no-tipping policy.” 

The Court next considered whether money left behind by customers in the face of a valid no-tipping policy could somehow constitute tips. Looking to language in another subsection of the Tips Act regarding the obligation to inform customers of whether a service charge constitutes a tip, the Court expressed concern that unless an employer with a no-tipping policy clearly conveys that policy to its customers, those customers may have a reasonable expectation that the money they leave will be given to wait staff employees. However, the Court held that “where the employer has clearly communicated to customers that a no-tipping policy is in effect, money left by customers in establishments where service is provided by wait staff is not a tip that was given to wait staff employees, regardless of a customer’s intent.” This is because with a clearly communicated no-tipping policy, no customer could reasonably expect his or her change to be treated as a tip or for the wait staff employee to keep the change that he or she leaves behind.

According to the Court, an employer can clearly communicate a no-tipping policy through the posting of signs or by instructing its employees to convey verbally to customers the existence of the no-tipping policy. As long as the employer clearly communicates its policy that tipping is not permitted, the employer would not violate the Tips Act by retaining any abandoned change.

The Massachusetts Tips Act has been a significant source of litigation for some time. While this decision by the Supreme Judicial Court clarifies the law and makes it clear that it is legal for employers to prohibit tipping, the decision leaves open the potential for litigation over whether no-tipping policies are “clearly communicated” to customers such that any change left behind is not considered a tip. At the very least, all employers employing wait staff—including counter service establishments, fast food restaurants, coffee shops, delicatessens, and more—should ensure that any no-tipping policy is clearly communicated to its customers and, thus, enforceable and legal. The simple absence of a tip jar on the counter is not enough. Employers should consider posting signage and training employees on proper communications with customers about their no-tipping policies. Otherwise, such employers could face a claim that any money left behind by their customers constitutes tips. Employers with other service employees, as defined by the statute, should also consider how to best communicate their no-tipping policy to customers.

Sebago v. Boston Cab Dispatch, Inc.

In another highly anticipated decision, the Massachusetts Supreme Judicial Court vacated a lower court decision and held that Boston taxicab drivers were properly classified as independent contractors and thus not entitled to coverage by the Massachusetts Wage Act. Sebago v. Boston Cab Dispatch, Inc., No. SJC-11757 (April 21, 2015).

Four licensed Boston cab drivers brought suit against several defendants, including taxicab owners, radio associations (which handle dispatching), and a taxicab garage. The plaintiffs claimed that they had been misclassified as independent contractors instead of employees, which meant they did not receive the various protections offered under the Massachusetts Wage Act.

The taxi drivers lease their cabs from the medallion owners at preset flat rates; they then receive dispatch services, which they may—but are not required to—use for the purposes of transporting customers. The drivers and medallion owners use the lease agreement required by the city rules, which includes an optional independent contractor clause that was used for these drivers.

In ruling for the defendants, the Court analyzed in detail the police commissioner’s rules governing the ownership, operation, and other aspects of taxicabs, including the qualifications for receipt of a taxi medallion. The Court specifically distinguished the taxi driver analysis from cases in which employers had attempted to set up a scheme to circumvent the wage laws. The primary reason for that distinction is that the taxicab leasing system was established by the police commissioner through a regulatory mandate, not by the defendants themselves, who merely participate in the system.

The Court applied the well-established Massachusetts three-part independent contractor test and found in the defendants’ favor on all three prongs. On the first prong, the Court determined that the drivers receive almost no direction from the defendants, as they choose the shifts they work, may transport the number of passengers they wish, and may choose to take and decline dispatches as they see fit. In addition, the drivers may, and in fact do, use their leased cabs for non-work related purposes. Most of the drivers’ other conduct, including appearance, phone usage, smoking, and treatment of passengers, are all governed by the regulatory framework around taxicabs, not the defendant medallion owners. Thus, the Court concluded that the plaintiffs are generally free from the control and direction of the defendants.

For the second prong, the Court concluded that the driving services at issue are not within the medallion owners’ or radio associations’ ordinary course of business, because they are not in the business of actually transporting passengers. On the third prong, the Court determined that the drivers are free to lease taxis and medallions from whomever they choose, advertise their services through personalized business cards, and take or leave dispatches according to their liking, which means they are engaged in an independent business that does not depend on a single employer.

The Court concluded that all three prongs of the independent contractor test were satisfied in this case, which means that the drivers are not employed by the taxicab owners, radio associations, or taxicab garage.

In reaching the decision in this case, the Court relied heavily on the fact that the taxicab industry in Boston is highly regulated under a specific framework that governs the drivers’ role and their relationship with the medallion owners and radio associations. The Court also noted that although classification of individuals as independent contractors may generally place a significant burden on the government due to lost tax and insurance revenues, taxicab drivers are uniquely exempted from the definition of “employees” for the purposes of workers’ compensation, unemployment insurance, and income tax withholding, so there is little increased burden caused by this classification. In fact, the Court specifically stated that this decision is not applicable generally to other unregulated industries.

Importantly, this decision is applicable to the unique facts surrounding Boston taxicab drivers and does not generally change the application of the independent contractor law in Massachusetts. The decision leaves open the question of whether drivers can be treated as independent contractors under different facts—an issue that is getting much attention around the country with the prevalence of crowd-sourced ride services.