56 Litigating CA Wage & Hour Class and PAGA Actions (23rd Edition) Seyfarth Shaw LLP | www.seyfarth.com entire service “team,” particularly in light of the fact that it is probably difficult for the average patron to distinguish between those who are “shift supervisors” and those who are not.280 While Chau was a significant victory for employers, the specific circumstances of the case mean that it should not be interpreted to suggest that supervisors with the powers normally attributed to managers (power to discipline, hire and fire, and give commands, etc.) may share in a traditional “tip pool.” It is also unclear whether Section 351 was intended to preclude a supervisor from receiving tips in the situation where the tips were actually left for the supervisor. C. Timing of Payment Of Tips To Employees Also critical to compliance is the timing of payment of any tip left to employees. Labor Code Section 351 states in part: “An employer that permits patrons to pay gratuities by credit card shall pay the employees the full amount of the gratuity that the patron indicated on the credit card slip, without any deductions for any credit card payment processing fees or costs that may be charged to the employer by the credit card company. Payment of gratuities made by patrons using credit cards shall be made to the employees not later than the next regular payday following the date the patron authorized the credit card payment.” As a result, if a tip is left via credit card following the close of payroll during a particular pay period, but prior to the payday for that pay period, a tip may be considered late if the payment is made on the following payday. The need for timely payment under Section 351 thus may require an alternate method of payment that permits payout during the pay period in which the tip is left. D. The Future of Tip-Pooling Cases Under California Law The California Supreme Court’s 2010 decision in Lu v. Hawaiian Gardens, Inc., clarified that there is no private right of action to enforce Section 351, foreclosing any future tip-pooling cases under that statute.281 What the Supreme Court did not do, however, is foreclose the possibility of tip-pooling cases altogether. The Lu Court specifically found that if an employee is entitled to misappropriated gratuities, the employee could collect them under other legal theories, e.g., conversion.282 A plaintiff could also, most likely, recover such monies as restitution under California’s Unfair Competition Law or recover penalties for the violation under Labor Code Section 203, Section 226, or PAGA.283 In addition, numerous class actions are being filed asserting that service charges, discussed below, are in fact tips under Section 351 that need to be distributed directly to employees. 280 Id. at 705. 281 Lu v. Hawaiian Gardens Casino, Inc., 50 Cal. 4th 592, 600 (2010) (“[T]here is no clear indication that the Legislature intended to create a private cause of action under the statute.”). 282 Id. at 603-04 (“[H]olding that section 351 does not provide a private cause of action does not necessarily foreclose the availability of other remedies.”); but see Wilkes v. Benihana, Inc., Case No. 16cv2219 JM (DHB), 2017 WL 784231, at *34 (S.D. Cal. Feb. 28, 2017) (dismissing tip-pooling claim branded as one for conversion and unfair competition because the plaintiff failed to allege a violation of Labor Code section 351). 283 See O'Connor v. Uber Techs., Inc., 58 F. Supp. 3d 989, (N.D. Cal. Sept. 4, 2014) (Labor Code Section 351 violation a predicate for UCL claims).
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