Hospitality Industry Workers and Gratuity Violations in New York

Dec. 14, 2011

We recently had an opportunity to speak with Jeffrey Brown, a partner with the New York employment law firm of Leeds, Morelli & Brown, PC. Our conversation centered on New York labor law regarding tips and gratuities in the hospitality industry and the rights of workers.

Get Legal: In your opinion, is there a problem with workers in the hospitality industry getting paid tips and gratuities owed them?

Mr. Brown: Yes. In cases involving catered events, weddings, conferences held in hotels — even fundraisers — we’ve found that employees responsible for serving guests do not always receive the gratuities owed them.

Get Legal: Is it because their employer takes a portion of their tips?

Mr. Brown: Not exactly. The problem here has to do with the contracts signed between a catering business or hotel and the person or party hiring them. Typically in the hospitality industry, gratuities are listed in a service contract. These gratuities are intended to reimburse waitstaff, bartenders, bussers, bar backs and sommeliers for their services. In many cases, employees make minimum wage, and gratuities are intended to supplement what they make in order to increase their compensation for what may be an event of only a few hours or a day or two.

Problems arise when employers list these gratuities in a contract as service fees, but don’t pass the gratuities along to employees. In some cases, gratuities are 20 percent to 22 percent of the total cost of catering services. If you have a large event catered at an exclusive hotel in Manhattan, we’re talking about hundreds of thousands of dollars. When waitstaff is denied 20 percent or 22 percent of the value of that contract, there are tens of thousands of dollars at stake for people who earn minimum wage and could use — and deserve — the money.

Get Legal: But if employees are aware of tips owed them, why don’t they simply demand them?

Mr. Brown: Well, it’s not that simple. Even though many of these contracts stipulate a mandatory service fee — essentially a gratuity for waitstaff, bellhops, bartenders, etc. — employers would later claim the service charge was an administrative fee. For example, suppose you hire EZ Catering for your daughter’s wedding banquet. The contract indicates waitstaff will be paid 20 percent of the total value of the contract, say 20 percent of $20,000. You expect EZ to pass along $4,000 to its waitstaff. Instead, EZ tells its employees the service charge is actually an administrative fee for setting up the banquet, making sure people were available to work and so on. As a result, EZ keeps the $4,000 that should have been a gratuity for its employees.

Get Legal: Isn’t this a violation of labor or wage law?

Mr. Brown:. Yes, it is. In Samiento vs. World Yacht, Inc., the court considered whether withholding a mandatory service charge violated §196-d of New York Labor Law, which forbids employers from taking any money that is intended as a gratuity for employees. The court decided that a mandatory service charge represented as a gratuity for service employees gave every reason for a consumer to believe the charge was intended for the employer’s waitstaff. There are other cases as well that have asserted the rights of hospitality industry workers. Here in New York, the 21 Club was sued for withholding mandatory service charges. The Waldorf-Astoria Hotel was also sued for similar reasons.

Get Legal: Are there laws on the books that provide hospitality workers with legal options for recovering what is owed them?

Mr. Brown: Yes. In January of 2011, the New York State Department of Labor’s Hospitality Wage Order went into effect. In many ways, the Wage Order was enacted to address labor law abuses that have long affected the hospitality industry. Specifically, under § 146-2.19(c) of the Hospitality Wage Order, employers are required to tell customers in writing whether a particular service charge is a gratuity or not. According to the requirements of the Wage Order, clear, readily understood language must be used when informing customers that certain charges are in fact fees rather than gratuities. Additionally, the notification itself must use a font similar in size to that of the surrounding text. If an employer decides to divide a service charge into gratuities and administrative fees, these must be broken down into specific percentages for the customer as well. As such, if an employer withholds gratuities presented in a contract as gratuities, employees can sue to recover compensation for them under the terms of the Wage Order.

Get Legal: How can employees learn about their rights under the Hospitality Wage Order?

Mr. Brown: For workers in the hospitality industry, notice of the new Wage Order should be posted in a common area where all employees are likely to see it. If your employer hasn’t posted information regarding the Wage Order or claims it doesn’t apply to you, this may be a warning sign that gratuity violations have occurred.

Get Legal: What if you work in the hospitality industry and suspect your employer has violated the Wage Order — what can you do?

Mr. Brown: The first thing you need to do is remain calm and don’t confront your employer. Doing so might result in your getting fired, and your employer might try to destroy important evidence. If you believe you have a case, contact our law firm — Leeds, Morelli & Brown. We offer free consultations and represent clients on a contingency fee basis. This means we recover our costs through whatever money is recovered in your case. If there is no award or settlement, we don’t recover anything. We represent individuals and are also prepared to take a case forward as a class action lawsuit.

Get Legal: If gratuity violations have occurred, can employees expect to recover the full amount of what is owed them?

Mr. Brown: The statute of limitations on these kinds of cases is six years. Practically speaking, this means the look-back period in any given case might be as much as six years, depending on how long an employee has worked for an employer. If you’ve been denied gratuities owed you and you bring your case forward as a class action, you could recover all that is owed you and more, depending on the nature of the award or settlement. Our employment law attorneys can sit down with you, evaluate your case and discuss the options available to you.