Section 351 of California’s Labor Code prohibits employers from taking any gratuity patrons leave for their employees, and provides that such gratuity is “the sole property of the employee or employees to whom it was paid, given, or left for.” A number of Courts of Appeal have consistently held that this prohibition does not extend to employer-mandated tip pooling -- where employees must pool and share their tips with other employees. Louie Hung Kwei Lu, a former card dealer with Hawaiian Gardens Casino, Inc., decided to test these rulings.

In Lu v. Hawaiian Gardens Casino Inc., Case No. S171442, Lu brought a class action against the casino based on its mandatory tip pooling policy. The casino’s policy required dealers like Lu to contribute 15 to 20 percent of their tips to a tip pool to be shared among other designated employees who provided service to casino patrons. Lu alleged that the tip pooling policy violated Section 351. However, although the case made its way to the California Supreme Court, the Court never decided the issue. Instead, the Court focused on the threshold issue of whether Section 351 provides a private cause of action for employees to recover any misappropriated tips from employers. On August 9, 2010, the Court decided that it does not.

The Court found that whether a party has a right to sue for violation of a statute depends on whether the legislature “manifested an intent to create such a private cause of action.” It reviewed the language of the statute and the legislative history and found that, even though some of Section 351’s language suggested a right to bring an action for misappropriated tips, the statutory language did not “unmistakably reveal a legislative intent to provide wronged employees a private right to sue.”

Although the case appears to be a clear victory for employers in the State of California, employers still need to be cautious when enforcing their tip pooling policies and practices. The California Supreme Court noted that, even though Section 351 does not provide a private cause of action for employees, its holding does not necessarily foreclose the availability of other remedies; and that it did not see why, to the extent an employee may be entitled to certain misappropriated gratuities, other remedies such as a common law action for conversion would not be available.