Employees’ Tip Ball Fails To Save Game; Series Continues

This blog and Baker Hostetler’s HospitalityLawg often come across the same cases, particularly because the hospitality industry is increasingly the target of employment class actions.  The entry below was largely prepared by our hospitality industry team, who we thank for their efforts.

We along with our sister blog reported a few weeks ago that a hote­lier was found li­able by a Hawaii fed­eral court for not dis­trib­ut­ing 100% of “ser­vice charges” to wait staff as tips.  That re­sult was pred­i­cated on read­ing the fol­low­ing two laws in tan­dem:

  • Hawai­ian Revised Statutes § 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 § 388-6 con­cern­ing “With­hold­ing of Wages.” This statute pro­hibits em­ploy­ers from de­duct­ing, re­tain­ing or oth­er­wise caus­ing not to be paid “wages” to an em­ployee. 

In the ear­lier case, the de­fen­dant hote­lier was un­suc­cess­ful in ar­gu­ing that that the above statutes were am­bigu­ous.  But if you watched the World Se­ries, you know that dif­fer­ent um­pires have dif­fer­ent strike zones.  So if we ex­tend Chief Jus­tice Robert’s fa­mous metaphor, we shouldn’t be sur­prised that a dif­fer­ent court had a dif­fer­ent call.

In Vil­lon, Dis­trict Court Judge Leslie Kobayashi un­der­took a de­tailed re­view of both statutes and con­cluded that the plain­tiffs may have chased a bad pitch.  Here’s a short play-by-play:

  • Judge Kobayashi first noted that § 481B-14 used the phrase “tip in­come,” while § 388-6 re­ferred to “tips.”  From this she noted that the Hawaii Leg­is­la­ture had elected to use dif­fer­ent ter­mi­nol­ogy, but that it wasn’t “read­ily ap­par­ent” what the dis­tinc­tion was.
  • This am­bi­gu­ity al­lowed Judge Kobayashi to delve into the leg­isla­tive his­tory, which proved to be il­lu­mi­nat­ing.  Turns out §481B-14 was orig­i­nally pro­posed as an amend­ment to the Hawaii wage and hour laws, in­clud­ing § 388-6.  But, based on con­cerns raised by the In­ter­na­tional Long­shore and Ware­house Union and the Hawaii De­part­ment of La­bor and In­dus­trial Re­la­tions, the bill was con­verted to a new sec­tion in the con­sumer pro­tec­tion law with the pur­pose of en­hanc­ing “con­sumer pro­tec­tion with re­spect to ser­vice charges im­posed by ho­tels and restau­rants on the sale of food and bev­er­ages.” 
  • From this, Judge Kobayashi de­ter­mined that the laws were not of the same sub­ject mat­ter, and thus could not be con­strued with ref­er­ence to each other.  

Judge Kobayashi then cleared the bases as far as those fans of the dis­pas­sion­ate um­pire ap­proach are con­cerned:

This Court is sym­pa­thetic to Plain­tiffs’ po­si­tion.  There is an un­just and gap­ing hole in the statute: if De­fen­dant ul­ti­mately pre­vails on Plain­tiffs’ Chap­ter 480 claim and Plain­tiffs’ can­not en­force the al­leged § 481B-14 vi­o­la­tion through any other means, ar­guably no one will en­force the vi­o­la­tion. . . . Un­for­tu­nately, it is not this Court’s place to sit as the Leg­is­la­ture does and try to cre­ate a new en­force­ment mech­a­nism to re­place or sup­ple­ment an old one, no mat­ter how in­ad­e­quate and un­fair the orig­i­nal statu­tory scheme may be.

In the end, Judge Kobayashi elected to de­fer to a closer, the Hawaii Supreme Court, as to the ques­tion of whether food and bev­er­age em­ploy­ees can en­force al­leged vi­o­la­tions of § 481B-14 through Hawaii’s wage and hour laws.  We can bet that the plain­tiffs’ bar will be look­ing to pitch its way out of a jam when it comes to the pre­cise lan­guage of the ques­tions to be cer­ti­fied.       

The Bottom Line:  Tipping policies are becoming a target for class action wage and hour litigation.  There is split of authority in Hawaii regarding the scope of relief, and the treatment of “service” fees that will be of great significance to hospitality employers.