Starting June 10, 2016, Ontario employees have increased protection regarding the tips and gratuities left by customers. As we discussed in a previous post, Bill 12 amends the Employment Standards Act, 2000 (“ESA”) to prohibit employers from withholding, making deductions from, or collecting tips or other gratuities from employees, unless authorized to do so under the ESA.

What’s Covered

These new rules affect all workplaces where tips or gratuities are given – bars, restaurants, coffee shops, banquet halls, hotels, spas and salons, taxis, etc.

Bill 12 broadly defines “tips and other gratuities” as:

  • voluntary payments made by a customer to an employee, which might reasonably be inferred as intended to be kept by the employee or shared among employees;
  • voluntary payments made by a customer to an employer, which might reasonably be inferred as intended to be redistributed to an employee or employees;
  • payment of a service charge or similar charge, which might reasonably be inferred as intended to be redistributed to an employee or employees; and
  • other payments as prescribed by regulation.

In unionized workplaces, collective agreement provisions dealing with tips or gratuities will continue to apply in the workplace, if the collective agreement is in force on June 10, 2016. Once the collective agreement expires, Bill 12 will apply, and any provisions dealing with tips or gratuities in the renewal collective agreement will need to comply.

Tip Pools and Other Exceptions

Bill 12 permits employers to “pool” tips and gratuities for distribution, if the pooled amounts are distributed to some or all of the employer’s employees. Employers are generally prohibited from participating in these pools, unless the owner/director/shareholder regularly performs similar work to his or her employees.

Employers in the service industry had also expressed concerns about the treatment of service charges imposed by credit card companies. Under Bill 12, as written, where the customer pays with a credit card and includes a tip or gratuity in addition to the bill total, the entire amount in excess of the bill total would need to be given to the employee or employees. As a result, any credit card service charge would be borne by the employer. In response, the Ontario government passed a Regulation exempting these charges.

Key Takeaways

As of June 10, 2016, employees will be able to bring a complaint under the ESA where the employer fails to comply with Bill 12. Therefore, employers should review and revise any existing policies and procedures about tips and other gratuities, and ensure that managers, supervisors and employees are notified of the changes.

When drafting customer contracts that include service or administrative charges – such as a contract for the use of a banquet hall – employers should clearly indicate: (a) what the charges are intended to cover; and (b) which charges will be redistributed to employees. Where an administrative or other fee is meant to cover overhead or other costs not related to employees, the contract should indicate that no portion of the charge is redistributed to employees.