The decision establishes that employees have no right to sue under the California Labor Code to recover tips or gratuities allegedly withheld or misappropriated by their employer.

August 10, 2010


On Monday, the California Supreme Court unanimously held that employees have no right to sue under the California Labor Code to recover tips or gratuities allegedly withheld or misappropriated by their employer.


In Lu v. Hawaiian Gardens Casino, Inc., a casino card dealer filed a class action lawsuit against his employer based on the casino’s written tip pooling policy that required dealers to contribute 15 to 20 percent of their tips to a tip pool that was shared among other employees who provided services to casino customers.  The dealers retained 80 to 85 percent of the tips not contributed to the tip pool, and the casino did not deduct tips received from the dealers’ wages.  Supervisors and managers were specifically forbidden from receiving any money from the tip pool.  The plaintiff alleged various violations of the Labor Code, including section 351, which prohibits employers from taking or receiving employees’ gratuities.  The plaintiff also alleged that the tip pooling policy constituted unfair competition in violation of the California Business and Professions Code.


No Private Cause of Action Under the Labor Code


The Supreme Court affirmed the dismissal of the plaintiff’s claims under Labor Code section 351 on the grounds that the law does not provide a private right of action for an employer’s misappropriation of employees’ tips.  Despite language in the statute that declares the gratuity to be the “sole property of the employee to whom it was paid, given or left for,” the Court held that there is no explicit statutory basis for individuals to initiate private lawsuits to enforce the law.  Nor did the Court find that the statute’s legislative history supported the initiation of private claims.  Rather, the decision emphasized that an employer who improperly takes employee tips can be prosecuted for a misdemeanor and/or fined by the Department of Industrial Relations.


Tip-Stealing Lawsuits Remain Viable Nonetheless


The Court’s decision, however, does not sound the death knell for private lawsuits based on an employer’s tip pooling or tip distribution policies.  The Court expressly declined to rule on whether the policy at issue in Lu was lawful.  In so doing, the Court left open the possibility that employees may assert unfair competition claims based on tip distribution schemes that violate Labor Code section 351.


Further, the opinion explicitly states that it does not “foreclose the availability of other remedies.”  For example, the Court suggested that plaintiffs could assert a common law action for conversion instead of relying upon Labor Code section 351.  Moreover, employees can maintain a private cause of action against an employer for failure to pay the state minimum wage so that a tip pooling policy which causes employees to forfeit so much of their tips that their pay falls below the minimum wage may still subject the employer to liability based on that policy.


Thus, while the decision narrows the theories of liability under which an employer’s tip distribution policy can be attacked, the opinion leaves open alternative methods for plaintiffs to achieve the same end.  As such, the law on tip pooling and tip distribution is far from settled, and employers must assure that their tip distribution policies do not  result in deductions from employees’ wages, do not permit management to obtain any portion of the tips, and do not cause any employee’s pay to fall below the minimum wage.