The Hospitality Lawg thanks Joyce Ackerbaum Cox for contributing this post.  Joyce represents hospitality companies in a wide variety of employment matters, including discrimination, harassment and wage and hour claims.  Joyce has been ranked as one of the nation’s leading employment and labor lawyers by Chambers USA since 2006.

In an August decision from a federal court in Hawaii, a hotelier was found liable for unpaid wages to a group of over 100 wait staff employees who claimed the company cheated them out of tips by retaining a portion of gratuity fees added to guest checks.  The Plaintiffs’ factual allegations focused on the failure of management to disclose that 100% of the “service charge” added to resort customers’ food and beverage bills would not be distributed to wait staff.  In connection with this factual claim, Plaintiffs pointed to two Hawaii state wage laws:

  • Hawaiian statute, section 481B-14, which requires service charges applied by hotels or restaurants to be distributed as “tip income” unless it is clearly disclosed that the service charge will be used to pay something other than wages or tips of employees.
  • Hawaii Revised Statutes, section 388-6 concerning “Withholding of Wages.” This statute prohibits employers from deducting, retaining or otherwise causing not to be paid “wages” to an employee.  “Wages” under Hawaiian law are broadly defined to include “tips or gratuities of any kind.”

The hotelier's arguments that the Hawaii statutes at issue were ambiguous and inconsistent with the Fair Labor Standards Act were rejected by the Court, which noted that states are free to provide greater protections to employees than that set forth under the FLSA.  A trial will be held at a future date to determine the amount of damages the employees are entitled to receive.

BOTTOM LINE:  Employers must be cognizant of the wage laws of the states in which they operate and recognize that such laws may provide greater protections than the FLSA.  While the FLSA clearly excludes nondiscretionary service charges from the definition of “tips,” some state laws may not, or may require the employer to take additional steps to ensure such fees are not owed to employees.