On March 2, 2009, the California Second District Court of Appeal rejected a putative class plaintiff’s argument that the California “tip pooling” statute, Labor Code § 351 (“§ 351”), prohibits so-called “indirect” servers (in this case bartenders) from sharing tips. Budrow v. Dave & Buster’s of California, Inc., (2d Dist. 3/2/09). The plaintiff and appellant, Aaron Budrow, brought a putative class action against respondent Dave & Buster’s of California, Inc., on the theory that distributions from the “tip pool” to persons who did not provide direct table service violated § 351. After the trial court sustained demurrers (motions to dismiss) to two of appellant’s three causes of action without leave to amend, the employer moved for summary judgment on the remaining cause of action that alleged a violation of California Business and Professions Code section 17200. The trial court granted the motion. The court of appeal affirmed.

The employer owned and operated restaurants throughout the U.S., employing servers, cocktail servers, buspersons and bartenders. The plaintiff was a cocktail server for a brief period of time. (The employer contended that it employed the plaintiff for one month; the employee contended that he worked for the employer for three months.) Dave & Buster’s tipping policy requires that servers contribute 1% of their gross sales to bartenders and other employees.

The court of appeal in Dave & Busters first observed that § 351 does not distinguish on its face between “direct” and “indirect” servers. (See our previous entries on recent DOL and judicial interpretation of tip pooling arrangements here and here).  The court explained that § 351 contains only two conditions: (1) the person must be an employee, and (2) the tip must have been “paid, given or left for” the employee. The court then “put to rest a controversy” caused by a 1990 case, Leighton v. Old Heidelberg, Ltd., 219 Cal. App. 3d 1062 (“Old Heidelberg”). The employee in Old Heidelberg contended that § 351 prohibits an employer from appropriating tips left for the server, and that requiring the servers to give part of his or her tip to the busboys was unlawful. The appellate court rejected the employee’s argument, reasoning that in leaving a tip, the patron intends to tip more than just the server or waiter. The plaintiff in Dave & Buster’s seized on language in Old Heidelberg “[i]f more than one employee, for example a waitress or a busboy, directly serve the table of a patron, the gratuity is left for the ‘employees’ within the meaning of section 351, and thereunder becomes their sole property as against the employer, to be equitably distributed between them” Old Heidelberg, 219 Cal. App. 3d at 1070.

The Dave & Buster’s court rejected the plaintiff’s “direct service” limitation on tip-pooling for four reasons: (1) Old Heidelberg did not define “direct” versus “indirect” service. A reasonable interpretation is that a bartender who mixes or pours a drink that a server delivers to a patron is “directly” serving the table. (2) Old Heidelberg made no attempt to fashion a rule that would limit tips to servers and busboys. (3) Old Heidelberg only held that busboys were entitled to share in tips; it did not address who is excluded from tip-pooling arrangements. (4) Old Heidelberg may have recognized some limitations on which employees could share in tips, but the court “did not decide what those limitations are, nor did it address the criteria or standards under which those limitations should be set.” The court noted that tip-pooling exists to “minimize friction between employees and to enable the employer to manage the potential confusion about gratuities in a way that is fair to the employees.” The court found it unnecessary to “ignite an artificial controversy over “direct” versus “indirect” service when the statute’s test is whether the tip was “paid, given to, or left for” the employee.

The Dave & Buster’s court provided helpful language for employers in different industries:

It is in the nature of a tip pool that it is based on the general experience of each particular establishment, that it is only broadly predictive of the reasons for and the patterns of tipping in that particular restaurant and that, in the final analysis, this is the best that anyone can do. It is simply not possible to devise a system that works with mathematical precision and Solomonic justice in each one of the millions of transactions that take place every day.

The Dave & Buster’s court also determined that the bartenders need not personally deliver the drinks to the table, and rejected the plaintiff’s reliance on a DLSE Opinion Letter dated Dec. 28, 1998, which identifies dishwashers, cooks and, for the most part, chefs, as employees who “do not provide direct table service” and therefore cannot share in tips. The court noted that “the propriety of administrative action predicated on the phrase ‘direct table service’ is not before us and therefore we do not express an opinion about any such administrative action involving the phrase ‘direct table service.’” Finally, in light of its holding, Dave & Buster’s did not address the employer’s arguments that the plaintiff could not invoke Cal. Bus. & Prof. Code § 17200 because he was not injured, and Labor Code § 355 mandates that the Department of Industrial Relations, and thus by implication not private parties, enforces § 351, i.e., there is no private right of action for an alleged violation of § 351. Employers should also note that California Labor Code § 353 and the FLSA require employers to retain accurate records of tips paid.

Until the Supreme Court of California decides the pending Starbucks tip-pooling class action case (in which a San Diego judge awarded $86 million, plus interest and attorneys’ fees) Chou v. Starbucks, trial court case no. GIC 836925, employers should ensure that anyone with any management responsibilities does not share in the tips. A more conservative approach would be to limit the sharing only to those employees (1) without any management responsibilities and (2) with direct face-to-face contact with customers. 

This blog entry was authored by Tyler Paetkau.