Yesterday the Minnesota Supreme Court held that various restaurants/bars violated Minnesota law by making deductions from employees’ gratuities for register shortages, bills of customers who walked out without paying and bills of customers who failed to sign credit card receipts. Karl v. Uptown Drink, LLC, No. A12–0166 (Minn. Aug. 14, 2013).

The plaintiffs in Karl were approximately 750 servers, bartenders, and security guards who worked for the defendant employers. If there was a register shortage, a customer walked out without paying or a customer failed to sign a credit card receipt, the employers required the plaintiffs to either pay for the shortages or take a write-up for failing to properly handle cash. The plaintiffs claimed that this practice violated Minnesota’s wage deduction law, Minnesota Statute Section 181.79. A jury disagreed and found in favor of the employers on the wage deduction claim.

The plaintiffs appealed the jury’s verdict to the Minnesota Court of Appeals. The Court of Appeals affirmed the jury verdict, finding that Section 181.79 only prohibited deductions from wages, and gratuities were not wages, and that Section 181.79 was not violated unless the deductions at issue brought the employees’ compensation below the minimum wage.

The Minnesota Supreme Court reversed the Court of Appeals’ decision, finding that the Court of Appeals erred in how it interpreted Section 181.79. First, the Supreme Court found that the term “wages” includes gratuities under existing case law. Second, the Supreme Court explained that the plain language of Section 181.79 does not require employees to show that deductions caused their wages to fall below the minimum wage. Rather, the statute prohibits “any deduction … from the wages due or earned by any employee … [for a] claimed indebtedness” to the employer.

Takeaway Points

In light of this ruling, employers in the hospitality industry should review any policies or practices involving automatic deductions from gratuities. The ruling is a good reminder to all Minnesota employers that wage deductions can be made only under very specific circumstances and typically require an employee’s written consent. In addition to Section 181.79, other Minnesota statutes provide, among other things, that certain future assignments of wages are void more than 60 days after the assignment is made, and that married employees must have their spouses’ consent to the assignment. See Minn. Stat. §§ 181.06, 181.07. Employers should work with counsel to ensure that any deductions they plan to make from employees’ wages are legally compliant.

Go here to read the Minnesota Supreme Court’s opinion in Karl v. Uptown Drink, LLC.