Seyfarth Shaw LLP | www.seyfarth.com Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) 53 VII. Tip-Pooling Labor Code Section 351 makes it unlawful for an “employer or agent” to “collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron.” In the past, this statute led to two distinct types of class actions on behalf of employees who claim their tips were unlawfully taken. The first type of action alleged that the employees were unlawfully required to share tips with co-workers for whom the patrons did not leave the tips. The second type of action alleged that “agents” of the employer unlawfully took employees’ tips. In 2010, the California Supreme Court held in Lu v. Hawaiian Gardens Casino, Inc.263 that Section 351 does not authorize a private right to sue. Although this decision was certainly a victory for employers, it does not necessarily mean the end of tip-pooling actions. A. Actions Alleging Tips Were Diverted to Co-Workers Who Did Not Earn Them In 2006, some twenty separate class action lawsuits were filed in quick succession alleging a claim for “tip-pooling violations” against various restaurants and restaurant chains in California. The underlying theory in the cases was that when a customer leaves a tip for a server at a restaurant table, the employer may not require the server to share the tip with bartenders who do not provide “direct table service” to the customer who left the tip. This alleged prohibition on certain tip-pooling arrangements is purportedly derived from Labor Code Section 351, which bars an employer from “tak[ing], collect[ing] or receiv[ing] any gratuity or a part thereof” left for a server, or from using such tips as a credit against the state minimum wage. This wave of lawsuits was unexpected, given that a published Court of Appeal case from 1990, Leighton v. Old Heidelberg, Ltd.,264 expressly held that Section 351 does not preclude tip-pooling among restaurant employees. Moreover, the tip-pooling arrangement approved in Leighton required that servers share tips left at the table with both the busboy and the bartender, and there was no suggestion anywhere in the case that the bartender had provided “direct table service.” Nonetheless, the “direct table service” notion derives from one rationale for finding tip-pooling lawful and consistent with public policy: [T]he restaurant business has long accommodated this practice which, through custom and usage, has become an industry policy or standard, a ‘house rule and is with nearly all restaurants,’ by which the restaurant employer, as part of the operation of his business and to ensure peace and harmony in employee relations, pools and distributes among those employees, who directly provide table service to a patron, the gratuity left by him, and enforces that policy as a condition of employment.265 The plaintiffs in these tip-pooling cases contended this language meant that only those who provide direct table service may share in the tip pool. Employers responded by pointing to the fact that Leighton approved a pool that included bartenders, and that this gloss on Leighton ignores other language in the decision that suggests its holding was much broader, such as the reasoning that (1) the legislative history shows that Section 351 was not intended to address tip-pooling at all, but 263 50 Cal. 4th 592 (2010). 264 219 Cal. App. 3d 1062 (1990). 265 Leighton, 219 Cal. App. 3d at 1067 (emphasis added).
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