Decision will allow Calif. restaurants to determine tip pool policies

June 2009 Hospitality Law

© 2009 Hospitality Law.

A recent court decision in a most unlikely jurisdiction - the State of California - has given restaurant owners a sig-nificant victory in determining the composition of their tip pools. In Budrow v. Dave & Buster's of California, Inc., 171 Cal App. 4th 875 (Cal. Ct. App. 2009), a California Court of Appeals upheld a decision granting summary judgment to a restaurant, which featured a mandatory tip pool that included bartenders. As a result of this decision, California now permits a restaurant's employer-mandated tip pool to include employees who do not provide direct table service to customers.

In the case, Aaron Budrow, a former cocktail server at Dave & Buster's, challenged the restaurant's mandatory tipping policy. The restaurant's tipping policy requires that servers contribute a portion of their gross sales (apparently without regard to the amount of tip income actually at issue) to bartenders and other employees. No members of "man-agement" participate or retain any portion of the tips, which is a clear and unambiguous violation of California Labor Code Section 351.

Budrow claimed that the tip pool's inclusion of bartenders violated the labor code and argued that the statute strictly limits tip pools to employees who provide "direct table service" to restaurant patrons. He further argued that bartenders should not be allowed to participate in the tip pool because they do not provide direct table service to customers. Bud-row also presented a 1998 letter signed by the chief counsel of the Division of Labor Standards Enforcement of Califor-nia's Department of Industrial Relations which, according to Budrow, made it "abundantly clear" that employees who do not provide direct table service cannot be included in a tip pool. The court, however, was not persuaded by his arguments.

In upholding the grant of summary judgment to the restaurant, the court found that the labor code and the cases construing it do not distinguish between direct and indirect table service. The court, in rejecting this distinction as unworkable, observed that "it is perfectly reasonable to conclude that a bartender who mixes or pours a drink for a patron that is delivered to the patron's table is 'directly' serving the table."

The court further stated that the California Labor Code Section 351 does not distinguish between the various functions that restaurant employees perform, and it determined that existing case law did not address which restaurant employees must be excluded from an employer's tip pool.

In referencing California Labor Code Section 351, the court stated that "[g]iven that restaurants differ, there must be flexibility in determining the employees whom the tip was 'paid, given to, or left for.'" The court added that "the decision about which employees are to participate in the tip pool must be based on a reasonable assessment of the patrons' intentions." Therefore, it is the restaurant patron who should decide whom the tip is left for, not the courts.

As a result, the court held that bartenders may lawfully participate in restaurant tip pools, and that it is immaterial whether the bartenders actually provide "direct table service" to patrons.

Alexander Hernaez is a partner in the San Francisco office of Fox Rothschild LLP. His practice focuses on employment litigation and counseling. Darren Rumack is an associate in Fox Rothschild's New York City office specializing in the representation of management in labor and employment law matters.