In an August decision from a federal court in Hawaii, a hotelier was found liable for unpaid wages to a group of over 100 wait staff employees who claimed the company cheated them out of tips by retaining a portion of gratuity fees added to guest checks. The Planitiffs’ factual allegations focused on the fail­ure of management to disclose that 100 percent of the “service charge” added to resort customers’ food and beverage bills would not be distributed to wait staff. In connection with this factual claim, Plaintiffs pointed to two Hawaii state wage laws:

Hawaiian statute, section 481B-14, which requires service charges applied by hotels or restaurants to be distributed as “tip income” unless it is clearly disclosed that the service charge will be used to pay some­thing other than wages or tips of employees.

Hawaii Revised Statutes, section 388-6 concerning “Withholding of Wages.” This statute prohibits employers from deducting, retaining or otherwise causing not to be paid “wages” to an employee. “Wages” under Hawaiian law are broadly defined to include “tips or gratuities of any kind.”

The hotelier’s arguments that the Hawaii statutes at is­sue were ambiguous and inconsistent with the Fair La­bor Stan­dards Act were rejected by the Court, which noted that states are free to provide greater protections to employees than that set forth under the FLSA. A trial will be held at a fu­ture date to determine the amount of damages the employees are entitled to receive.

The Bottom Line: Employers must be cog­nizant of the wage laws of the states in which they oper­ate and recognize that such laws may provide greater protections than the FLSA. While the FLSA clearly excludes nondiscretionary service charges from the definition of “tips,” some state laws may not, or may re­quire the employer to take additional steps to ensure such fees are not owed to employees.

Read additional details about this case on our sister blog, HospitalityBlawg.