Tip Pooling Laws

Brad Nakase, Attorney

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Is Tips Pooling Legal?

Most people have worked or know someone who has worked in the service industry. One of the main benefits of this industry is gratuity, or the tips. A tip is anything left for the employee that is above the actual amount of the bill. Gratuity or a tip can be defined further if it meets certain characteristics:

  • It may not be regulated or altered by the employer
  • Given voluntarily by customer
  • Customer has right to select amount
  • Customer has right to determine who receives the tip[1]

In California, there are two separate entities that regulate tips and protect the employees to this benefit:

  • Fair Labor Standards Act and
  • CA Labor Code Sec 350-356

Under the CA Labor Code, an employee is more protected than under the Fair Labor Standards. Even though the two may overlap in certain instances, the employer is required to follow the law that most protects the employee in that given state.[2] However, tips are not considered part of the employee’s normal wage.[3] This becomes important when calculating overtime because the employer does not have to factor in tips.[4]

When do I legally get my tips?

In California, tips are distributed usually based upon how they are received: cash or card.[5] Most employees prefer cash tips because he or she is entitled to the money right away and can walk away with it that evening.[6] Further, an employer cannot interfere with those tips and likely doesn’t even have knowledge of how much was left for the employee.

Credit card tips are usually not released until the next day and are the responsibility of the employer.[7] The employer goes through the receipts and sets out the allotted amount to each employee.

In some states, the employer is allowed to deduct money from the employee’s tips in order to cover credit card processing fees. Fortunately, here in California, that is illegal.[8]

Tip pooling

Tip pooling is sometimes used in the service industry specifically a restaurant. Tip pooling, by definition, is the combining of some or all the tips into one pot and dividing that pot among everyone based on a percentage.

Some workers find tip pooling unfair. For instance, if you are a server and have favorites or regulars that come into your restaurant weekly, request you, and leave you specifically a great tip, you probably do not want to share that with anyone else.

Moreover, tip pooling sometimes enforces bad behavior because an employee may slack off and still receive a percentage of all the tips regardless of job performance.

However, tip pooling has been around for a long time and California has not deemed it illegal.[9] In fact, tip pooling is allowed as long as the following are met:

  • The pool consists of employees
  • Tips included were given to employees and
  • Employers do not share in the tip pool (unless employers spend most of his or her time working as regular employees).[10][11]

Employer Must Keep Record of Tips

Under California law, employers must keep records of tips distributed to employees from either tip pooling or regular tipping if the tips have been given through check or card.[12] This allows the employee to have a record of his or her earnings and ensure everyone is being honest and straightforward with money.

If an employer does not follow the above rules, he or she may be fined up to $1,000 and/or imprisoned for 60 days so it is dire that employers understand how to handle gratuities and ensure records are kept.[13]

If my employer has violated the above rules, what do I do?

Unfortunately, California does not have a private cause of action that can be filed by employees against employers for misappropriated tips.[14] However, there are other options:

  • An employee can file wage claims with the labor commissioner department
  • An employee can file a conversion lawsuit (occurs when one interferes with another’s property and the market value is returned; usually a tort claim)
  • Claims under unfair business practices – allows anyone to file a suit who has lost money because of an employer specifically those who violate the labor codes[15]

Although there is not a specific cause of action for an employee who loses his or her tips, as you can see above, there are other methods which allow an employee to recover for unfair practices. It also important to note retaliation for bringing lost wages or tips to an employer’s attention is prohibited.[16]

For example, if an employee feels or know his or her tips are lighter this month than supposed to be, he or she can bring this to the employer’s attention and the employer cannot fire them or treat them differently just because of this accusation. The law protects the employees when speaking up and ensures all directions are handled fairly.

Legal Reference

[1] Rev. Rul. 2012-18

[2] Labor Code, § 351

[3] Labor Code, § 510, subd. (a)

[4] Labor Code, § 510, subd. (a)

[5] Labor Code § 351

[6] Labor Code, § 351

[7] Labor Code, § 351

[8] Labor Code, § 351

[9] Avidor v. Sutter’s Place, Inc., 212 Cal. App. 4th 1439, (2013)

[10] Avidor v. Sutter’s Place, Inc., 212 Cal. App. 4th 1439, (2013)

[11] Labor Code, § 351

[12] Labor Code, § 353

[13] Labor Code, § 351

[14] Lu v. Hawaiian Gardens Casino, Inc., 50 Cal. 4th 592 (2010).

[15] Lu v. Hawaiian Gardens Casino, Inc., 50 Cal. 4th 592, 593 (2010).

[16] Labor Code, § 98.6, subd. (a)

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