O’Grady v. Merchant Exchange Prods., Inc., 2019 WL 5617001 (Cal. Ct. App. 2019)

In this putative class action, banquet server and bartender Lauren O’Grady alleged that her employer’s practice of automatically imposing a 21 percent “service charge” to every food and beverage banquet bill constituted a gratuity that had to be fully paid to nonmanagerial service staff employees pursuant to Cal. Lab. Code § 351. The trial court sustained the employer’s demurrer to the complaint on the ground that a service charge can never be a gratuity. The Court of Appeal reversed, observing that the terms “tip,” “gratuity,” and “service charge” are not “interchangeable synonyms” and that “service charge” is a “protean term of no fixed meaning.” Accordingly, the Court held that plaintiffs might be correct that the custom in the hospitality industry is to treat sums designated as “service charges” as gratuities for employees within the mean of Section 351.