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Here's a Tip... Managers Shouldn't be Sharing Them With Servers

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New York, NY: A ruling this month governing the hospitality industry in New York could have a sweeping effect as to just what is a service charge, and what is a tip. And for management sharing tips, the ruling could spell an end to that practice. Here's the scoop, or the tip if you will...

Server Arnel Samiento and his colleagues who work for World Yacht, took exception to the fact that their employer did not pass along the entire 20 percent service charge, levied to patrons aboard their dinner cruises in New York harbor, to the waitstaff. The employees further alleged misrepresentation, in that customers were led to believe that the gratuity was included in the ticket price, while at the end of the day the wait staff would only see a gratuity in real dollars of between four and seven percent. The remainder would be split amongst managers working the day.

ServerThe latter is a long-held practice in the hospitality industry, even if it appeared to fly in the face of state law.

It has been common industry practice throughout the entire country that employers who provide banquet, or other large-scale food services levy service charges to their customers, as a means to help compensate employees involved in the provision of that service. Such services charges are split between waitstaff and managers involved in the day's proceedings.

However, that practice was challenged in view of New York statutes pertaining to the issue. Plaintiffs in the original action alleged that the employer told its patrons that the service charge was distributed to its waitstaff, an allegation that was never disproved or verified as the lower court threw out the case, ruling that a service charge could never be interpreted as a gratuity.

However, on appeal the New York Court of Appeals focused on whether or not a mandatory service charge could fall within the phrase, "any charge purported to be a gratuity." The higher court held that if, indeed, a service charge of any kind is purported to be a gratuity, then no part of it can be retained by management.

It should be noted that in Samiento vs. World Yacht, the court held that because the employer treated all service charges as gratuities for tax purposes, rather than just the portion allotted to the waitstaff, patrons could assume that the entire service charge was a tip, and thus paid out to servers only.

This decision, if it is not challenged legislatively in New York State, is expected to reverberate around the entire country. Servers and waitstaff can expect to reap the rewards from a gratuity that some my view as excessively high, whereas other managers before now expecting a share of that service charge, will now get nothing and could effectively come in as underpaid.

How this all comes out in the wash is anyone's guess. Employers and service providers might opt to pay their managers a higher stipend, and then reduce the service charge to a rate more conducive to traditional tipping levels for waitstaff. Another alternative is to levy the service charge to aid in the compensation for managers only, and encourage patrons to tip servers and waitstaff directly. The latter could be confusing for patrons, who could prove their reluctance to offer a gratuity on top of the service charge they are already paying. Patrons may also be reluctant to offer a voluntary gratuity for a banquet or buffet environment, where the atmosphere is less intimate.

Regardless, the Court has attempted to draw the line between who is waitstaff, and who is management. The industry has clouded the issue on its own, by foisting supervisory roles and managerial tasks onto waitstaff for a farthing more in compensation, relying on tip-sharing to make up the difference. The employer gets away with paying the 'manager' (in reality a server, or a member of waitstaff with management responsibility) less, and muddies the waters for effective working relationships between pseudo-managers and front-line waitstaff. Imagine having a colleague with whom you work alongside, but someone who has a supervisory role over you, participating in job performance reviews within the context of your abilities, and having a say in your future with the company. And yet, this person makes, perhaps 25 cents more per hour than you.

Should this person be sharing in the tips? Based on what they make per hour, which is more than you but still painfully low, well... yes. But hey, these people are management too. The employer should be paying them more, as an agent of management. And the law in New York suggests that managers should not be getting tips.

Those sympathetic to the hospitality industry will be looking to the State of New York to revise the statutes, against which this court decision was made. In the meantime servers and waitstaff, who for years have felt they've been getting the short end of the stick on the tip front, will be looking to replicate the New York decision in the rest of the country.

If you are a server, or member of a waitstaff and feel that managers have been receiving gratuities unfairly, thus taking money from your pocket, you would be wise to contact a lawyer for help in making your case for a bigger share of the tip jar. The legal precedent has now been set.

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