Monday, August 7, 2017

Employer Held Liable in Tip Pooling Class Action

A high-profile Minnesota employer, Surly Brewing Company, has been found liable in a state court class action for violations of Minnesota’s wage and hour statute governing the pooling of employee tips. The amount of damages has not yet been assessed but the class of employees who stand to receive payment from Surly under the ruling appears to number in the hundreds. Given the prevalence of various kinds of tip pooling in the hospitality industry, a great many Minnesota employers may be at risk for similar litigation under the tip pooling statute. At a minimum, an employer whose employees receive and share tips should immediately re-assess its risk in light of this ruling, which is one of the few to interpret the tip pooling statute.

Under Minnesota’s wage and hour law, “any gratuity received by an employee or deposited in or about a place of business for personal services rendered by an employee is the sole property of the employee.” The court in the Surly class action noted that the clear language of the Minnesota tip pooling statute requires that each [tipped] employee’s participation in a tip pool be by voluntary agreement. Because each tipped employee has a separate individual right to control his or her tips, this right is not subject to majority rule by a group that includes non-tipped employees such as wait assistants, barbacks, and buspersons who may be part of the service team. “One employee is not allowed to bind any other employee to participate in sharing gratuities.”

If agreement about the tip pooling system is made with employer coercion or even participation (beyond the minimal participation permitted under the statute) the system violates the law. Ultimately, this court held that Surly improperly participated in the development of the tip pool and required bartenders and servers to contribute their gratuities to the pool. The following employer actions were each violations:
  • Arranging and calling a mandatory employee meeting at which a vote was taken on the tip pooling question
  • Selecting employee representatives to speak about the tip pool at the meeting
  • Having a high level manager express her preferences about the tip pool to the employees at the meeting
  • Determining that indirect service employees would be present at the meeting and vote on the proposals
  • Preparing the questions on the ballot and participating in presentation of the ballots and tabulation of the votes
  • Preparing and presenting Acknowledgment forms for employees to sign indicating their agreement to follow the majority vote regardless of their personal views and that they understood the tip pooling applied to them.

Surly argued that the court should find no violation, by applying an exception in the statute allowing employer participation “to, upon the request of employees, safeguard gratuities to be shared by employees and disburse shared gratuities to employees participating in the agreement.” The court rejected this, saying that the statute’s exception:
  • Does not allow the employer to go beyond acting to facilitate collection and disbursements for participating employees . . . or to set a mandatory tip pool meeting, to require employees to pick representatives for making decisions about tip pooling
  • Does not allow Surly to direct how employees should go about making a tip pool arrangement.
  • Does not allow senior management to weigh in with their opinions or preferences as to what any independent employee agreement should look like, or to require that all employees abide by a single method for agreeing to share gratuities.

The court acknowledged that the alternative required by the statute is for an employer to “say nothing, do nothing and wait for [tipped employees] to address the issue themselves.”

It is plain from the court’s decision that the meaning and effect of the statute critically depend on the issue of what exactly constitutes receiving of a gratuity. This decision, unfortunately, does not address what this means in modern practice when, for example, a gratuity is included on a credit card charge signed by a customer without a specific indication for whom the gratuity is intended. The court acknowledged that the statute’s language “may not reflect potentially desirable models for modern food service employers” and that Surly had “articulated its vision of a ‘fairer’ distribution of income from customers with all of the staff that contribute directly and indirectly to the customer’s experience.” But the court indicated that the proper forum to raise such public policy issues is before the Legislature, not in a judicial forum. “If the statute has become a poor fit for modern employment practices, these issues must be presented in a legislative rather than a judicial forum.”

Until there is legislative change to the statute, employers with employees who receive tips will be well-advised to examine any system that may be in use for pooling or sharing of tips. 

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