Restaurants are getting hit with tip-pooling class action lawsuits. Now is the time to audit your practices, or, at the very least, review your tip pooling policies. This is especially important for Minnesota restaurateurs, as they face the difficult challenge of complying with the state’s unique tip-pooling statute—which is unlike federal laws and those of other states. Restaurants can make specific changes now to meet the law’s requirements and avoid class action litigation.
WHAT MAKES MINNESOTA TIP-POOLING LAWS SO UNIQUE
WHO CAN PARTICIPATE IN THE TIP POOL?
Under federal law and that of most states, a restaurant can require tip-pooling among employees as long as those forced to participate in the pool “customarily and regularly” receive tips. So, for example, since the dishwasher is not getting tips for how clean the plates are, servers cannot be forced to pool their tips with them. Also, under federal law, employees who “customarily and regularly” receive tips may include, among others, hosts, bartenders, and bussers (and, of course, servers).
Minnesota law, which trumps federal law for Minnesota restaurateurs, is quite different. Whether a restaurant can require employees to participate in a tip pool does not depend on who “customarily and regularly” receives tips, but rather on a distinction between “direct service” employees, who can—in certain situations—be required to participate, and “indirect service” employees, who cannot. The controlling regulations define a “direct service employee” as “one who in a given situation performs direct service for a customer.” An “indirect service employee” is a “person who assists a direct service employee,” including “bus people, dishwashers, cooks, or hosts.” Thus, unlike federal law, servers cannot be forced to share their tips with bussers and hosts who exclusively assist servers, but who do not themselves perform direct service.
In addition, regulations state that a mandatory tip pool among “direct service” employees is permitted only “in a given situation such as banquets, cocktail and food service combinations, or other combinations.” Restaurants must be careful in determining what sort of “combination” is eligible for a mandatory tip pool.
While mandatory tip-pooling may be permissible in Minnesota only for direct service employees in specific situations, if the pool truly is voluntary and without participation by restaurant management, then anyone—including servers, bussers, hosts, etc.—may join the pool. The challenge, however, is a restaurant’s ability to legally encourage pools that remain sufficiently voluntary to meet this requirement. This is typically where restaurants run afoul.
WHO MAY RECEIVE EVENT SERVICE CHARGES?
Restaurants often charge extra for large parties, events, or banquets. Under federal wage law, those types of mandatory charges are not considered tips. Even if the customer thinks the charge is going to the servers and, as a result, elects not to leave anything extra, the restaurant generally can keep the fee. Restaurants typically choose to give some of the fee to the event workers, but that is not required under federal law.
Again, Minnesota law is quite different. In Minnesota, these sorts of obligatory charges belong to the employees who worked the events unless certain specific requirements are met. An obligatory service charge must be distributed completely to employees if it is possible a customer could “reasonably construe” the charge as being a tip, and there is no “clear and conspicuous notice” that the charge is not a tip. In other words, to turn a service fee into money that can be kept by the restaurant, there must be a “clear and conspicuous notice” that the charge is not a tip so that an average customer would not think it is a tip. Regulations instruct—in great detail—what kind of notice meets this criteria: it should be “clearly printed, stamped, or written in bold type on the menu, placard, the front of the statement of charges, or other printed material given to the customer.” A notice is “clearly” printed when the font size is “at least 18 point (one-fourth inch) on the placard, or 9 point (one-eighth inch) or larger on all other notices.”
Even with that detail, it is unclear whether the notice always must be “given to the customer,” or whether a wall placard is good enough. The best course may be to place a notice on the wall near the restaurant’s entry, in bold 18-point font, and include a similar notice in bold 9-point font on the menu or event form. While no court has yet endorsed specific language, something like the following likely would be sufficient: “An X% service charge will be added to events. Pursuant to Minnesota Statute § 177.23, Subd. 9, this charge is not a gratuity for employee service.”
TACKLE THESE ISSUES NOW!
Minnesota restaurants continue to be hit with expensive class action lawsuits alleging violations of server tip-sharing arrangements. Thankfully, there are concrete steps restaurants can take now to ensure compliance with the law’s unique requirements. The time is now to audit your tip-sharing policies, revamp your practices if necessary, and assess whether violations already have been happening and determine how to remedy those issues.