Tip Pooling – No Private Right of Action Under Labor Code

It is common practice for restaurant and casino workers to pool tips.  Under a typical arrangement, all service employees who are not “agents” of the employer (i.e., wait staff and others in the chain of service who are not management employees) place all of their tips in a lock box and the “pool” of money is later divided among them pursuant to an agreed upon formula.  In many if not most cases, tip pools are mandated by employers to ensure equity and peace in the workplace – to avoid disputes between and among tipped employees over whether the distribution of money fair.

The obvious advantage to a pre-arranged tip pool is that it involves a known distribution scheme so people do not have to negotiate every day over how much is allocated to each person. The state Labor Commissioner has blessed tip pools as permissible, so long as they are reasonable.  (Without a tip pool, each tipped employee keeps his/her own tips and decides for themselves whether or not they will “tip out” other employees who are helpful to them in connection with service rendered to the public).

Tips are governed by section 351 of the California Labor Code, which states:  “No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as part of the wages due the employee from the employer.  Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.”

In Lu v. Hawaiian Gardens, the California Supreme Court was called on to determine whether there is a private right of action under this section.  If there is such a right, employees who disagree about being required to share tips can file suit for violations of section 351. If there is no private right of action, enforcement is left to the Labor Commissioner’s Office.

In the Lu case, the court determined that there is no private right of action. 

It should be noted that even though there is no private right of action under section 351, the court made clear that there may well be other remedies, such as a common law action for conversion.

For your convenience, a complete copy of the court’s opinion is attached.

Our firm regularly advises both employers and employees regarding various legal issues that arise in the workplace. Feel free to contact us if you need assistance in this area.