The Ontario Legislature recently passed the Protecting Employees’ Tips Act, 2015 (“Bill 12”) and it received Royal Assent on December 10, 2015. Bill 12 will amend the Employment Standards Act, 2000 (“ESA”), with its primary effect being to prohibit employers from withholding, making deductions from, or collecting tips or other gratuities from employees unless otherwise authorized to do so.

The bill passed unanimously in its third reading, and its language and effect appear to be very similar to legislation already in place in Quebec, New Brunswick, Newfoundland, and Prince Edward Island. The bill emerged from a perception amongst some in the food and drink service industry (rightly or wrongly) that “tip theft” by employers is a significant and growing concern.

Bill 12 will come into force on June 10, 2016, and will enact a new Part V.1, Employee Tips and Other Gratuities in the ESA. The six month window before it comes into force will give service industry employers an opportunity to review and adjust their current tips and gratuities policies as needed.

Bill 12 provides a broad definition of “tips and other gratuities” and would include:

  • voluntary payments made by a customer to an employee which might reasonably be inferred as intended to be kept by the employee or shared amongst other 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
  • other payments as prescribed by regulation

Bill 12 specifically exempts “such charges as may be prescribed relating to the method of payment used, or a prescribed portion of those charges”, as well as any other exempted payments as prescribed by regulation. To date, there have been no regulations enacted which would further clarify what kinds of additional payments would be included or exempted from the Bill’s definition of “tips and other gratuities”.

Based upon the exemption as currently written, there is some question about the status of mandatory service charges often applied by credit card companies on a per transaction basis. As it stands, it is likely that where a customer makes a payment over and above the bill total on a credit card (20% of the bill, for example), the entirety of that 20% must be given to an employee or employees, even where the employer must pay a charge (often approximately 2.5% per transaction) to the credit card company. It is possible that regulation will be enacted that specifically exempts this type of charge but as it stands, employers will likely be responsible for absorbing these additional costs.

Bill 12 still allows for employers to “pool” tips and gratuities amongst employees where such a policy or practice exists in a workplace, provided that all these amounts are paid out to eligible employees in the end. However, employers are generally ineligible to share in a portion of this pooling except under very specific exceptions (for example, an owner/director/shareholder who regularly performs to a substantial degree the same work performed by some or all of its employees, or employees of a different employer in the same industry who commonly receive or share in tips or other gratuities).

In workplaces where a tips and gratuities policy is governed by a collective agreement on the day Bill 12 comes into force will remain governed by the provisions of that existing collective agreement, even where it conflicts with Bill 12, until a renewal collective agreement comes into effect. Under such circumstances, if the parties do not negotiate a new tips and gratuities provision in the renewal process, the provisions of Bill 12 will thereafter prevail over the prior provisions.

The actual future impact of Bill 12 will likely remain largely unknown until there is clarity on the accompanying regulatory framework. Employers can hope that these regulations will specifically exempt not only credit card fees but also miscellaneous charges applied in many locations such as for banquet services. Given the often narrow profit margins that are the reality for many service industry employers, developments with this legislation should be closely monitored, and in the interim, employers should review their current policies and procedures, and plan for all contingencies.