"......and Please Remember to Tip Your Bartender And Waitress."
The famous 21 Club in New York was on the Curly end of a Larry-esque double-slap from the Southern District of New York last week. Alderman v. 21 Club.pdf Case No. 1:09-cv-2418 (Aug. 20, 2010). By way of background, the plaintiff employees in Alderman are seeking to represent a proposed class of 21 Club banquet staff members on wage/hour claims under the Fair Labor Standards Act and New York law, based on their receipt of gratuities. Proposed class members who work a particular event at the restaurant share an automatic 18 percent gratuity charged on the total bill. The plaintiffs, who apparently don't believe that these gratuities are gratuitous, claim that the tips should be included in their regular rate for purposes of calculating overtime pay. And, because the only thing better than getting more is getting even more, the plaintiffs also claim that the 21 Club collects more than 18 percent in service charges on banquet bills, and that they should get the whole enchilada.
The class members, however, are all covered by a collective bargaining agreement as good hard-workin', dues-payin' members of UNITE Local 100. It seems this collective bargaining agreement, which the Court described as "comprehensively set[ting] forth the terms and conditions of employment," included a provision that "specifically" (again, in the Court's words) entitled to banquet service staff only to an 18 percent gratuity on the entire bill for an event. The employer surprisingly interpreted this provision as entitling banquet service staff only to an 18 percent gratuity on the entire bill for an event.
As it turns out, the agreement apparently wasn't as "comprehensive" or "specific" as the Court first intimated. Thus, the Court rejected the employer's argument that the plaintiffs' entitlement to the 18 percent gratuity charge was governed by the collective bargaining agreement, and held instead that their claims arose under a New York state law prohibiting an employer from withholding any portion of a restaurant employee's gratuities. So what's the big deal there, right? Isn't that the law, that federal preemption doesn't apply if it's a right created under state law rather than under the collective bargaining agreement?
The big deal is that the statute specifically excludes "banquets and other special functions where a fixed percentage of the patron's bill is added for gratuities." Yes, you read that right. Banquets are excluded. The rule against withholding gratuities does not apply to employees who work banquets. (That's why we put the quote in bold.)
Well, how in the halloumi cheese did the plaintiffs survive dismissal, you ask? Because, the Court held, "the statute is somewhat confusing because the assurance of the employee's rights in the first sentence is followed by the latter portion of the last sentence which states that the statute is not applicable to functions where an amount is added to the patron's bill for gratuities." And, the Court reasoned, the plaintiffs couldn't be asserting a claim under the collective bargaining agreement anyway because the agreement only entitled them to 18 percent and they wanted more than 18%. With all due respect to the Court, that seems a bit of a head scratcher. The statute seems pretty clear to us (and a number of New York state courts) in saying that it's not intended to create rights on behalf of banquet employees. Since the labor agreement is the only other potential source of rights, the field of possibilities seems pretty narrow.
But wait, there's more! For slap #2 in its role of Larry to the 21 Club's Curly, the Court also held that the plaintiffs were not obligated to arbitrate their FLSA claims. The Court noted in this regard that the 18 percent gratuity discussed above might not be a gratuity at all, and might instead be an automatic service charge that would have to be included in the FLSA regular rate. But, numerous New York state courts have recognized that automatic service charges aren't covered by the no-withholding-gratuities statute!
Well, at least we can take some solace in the words of plaintiffs' counsel in the case, who keenly observed that "[t]his is a very good decision that might stop defendants from making these types of motions in the future."
(The real burning question of the case is ignored. When did 18 percent become automatic? Does anyone remember when the generally accepted tip calculation was 15 percent? What happened there?)
The bottom line: Beware the law in tip-pooling cases which is still unpredictable.