WAGE THEFT – Part Two: Tip Theft & Unlawful Tip-Sharing.

1 Comment

Tips ARE Protected

Cal. Labor Code, section 351. Provides that “No employer or agent shall collect, take, or receive any gratuity (tip) or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.”

That’s the law. But what does it mean and, more importantly, what are the available resources and avenues of recourse for those employees who have been subjected to unlawful practices at the hands of unscrupulous employers?

Who Gets the Tips?

The most important thing for an employee to know is that a tip belongs to YOU, the employee. In the eyes of the law, your tip is an extra payment from the customer. That tip is specifically intended for you. The employer is being paid for the goods and/or services already. At no point does this money belong to the employer, and interference with proper distribution of tips is, therefore, illegal.

Your employer cannot take your tips (or any part of them), and cannot adjust your pay by deducting money from your paycheck to offset tips you have earned. Neither can your employer use the amount of your tips as “credit” against any unpaid wages you have earned. You do not have to pay back your tips to your employer, with one exception:

Free service exception to tip-retention laws: If an employer provides a service for customers but the business doesn’t charge for that service, the employee may have to pay his or her tips back to her employers. Examples are a valet parking attendant who parks cars for a restaurant and a coat checker in a theater where the customer is not charged for the service. The employer must still pay minimum wage, and the employee must be paid his or her wage or salary in full, even if the tips collected are not enough to cover the employee’s wages or salary. The employer must advise you beforehand that any tips are to be turned over to the employer, to off-set the costs to the employer of offering the free services to his customers.

Some employers, particularly in the food service industry, mistakenly deduct amounts such as credit card fees from tips that have been paid by credit card. Under California law, credit card fees are the responsibility of the employer, as they are considered a routine cost of doing business. An employer is prohibited from deducting any portion of an employee’s tips to off-set credit card or other such charges.

Tip Credits in California?

Your employer cannot pay you less than minimum wage and use your tips to bring your pay up to the minimum wage. In some states, it is lawful for an employer to pay an employee less than minimum wage, and to deduct a portion of the employee’s tips to make up the difference. That practice, called a “tip-credit” is specifically prohibited in the State of California.

Involuntary sharing of tips by requiring “tip pooling” is not prohibited, but there are rules and restrictions on the practice. A program where an employee is asked to share a portion of his or her tips with other employees is called “tip pooling” or “tipping out” and is usually legal if it is common in your trade (e.g. restaurant workers). Since tips belong to the employees who helped with “serving the customer,” and sometimes more than one employee “serves” a customer (e.g. bussers, bartenders and waiters all make sure that the customer gets good service), it is OK for your employer to require that you share tips with those other employees who help to serve its clientele.

Chain of Service

However, there is a right way, and a wrong way, to enforce such a policy. Since a tip is intended as a thank you for good service, it has been held that only employees who might regularly receive tips, or who are in the line of “direct table service” can be part of any tip-pooling structure that has been enforced by management. Recent decisions such as Etheridge v. Reins Internat. California, Inc., (2009) have expanded that definition to include employees in the “chain of service” such as cooks and other back-of-house personnel, finding that they may qualify for a percentage of the tip-pooling payout. While an employee may have to share a percentage of tips with the “back of house” (busboys, cooks, etc), it remains clear that you are not required to share them with management. If any on-floor personnel are also managers, then they are not entitled to a share of the tip pool.  Even if they provide “table service” directly to customers, in California no portion of the tips collected for service staff are to be distributed to the employer or any managers or other agents.

Under California law, any mandatory, employer-run, tip-pooling arrangement must be reasonable. If you are required to contribute more than 15% of your tips to such a pool, that arrangement may violate the law. While Federal tax law mandates that no amount exceeding 15% of an individual’s tip can be required to be distributed to such a pool, California follows a standard that says deductions must be “reasonable.” In cases where service staff are asked to contribute over that amount, the employer risks such a pool being found to be illegal. Common practice can aid in defining reasonableness, e.g., if it is usual in the restaurant business for a waitress to tip out 15-20% to other employees, this arrangement might be found to be permissible.


These concepts are evolving rapidly, and case law is changing with them. It is important you know your rights as an employee, when you have recourse, and when you do not.

For more tips on your rights concerning tip retention, go to the California Department of Labor Standard’s Enforcement website. 

If you have a question about the legality of your own tip-pooling or other employment situation, you may call (510) 735-6316 to speak to an experienced labor lawyer for clarification on the specifics of your situation.

Lazear Mack, LLP
Employment Law Attorneys
436 14th Street, Suite 1117
Oakland, CA



You May Also Like

One comment

  1. May 28, 2014 at 9:54 pm

    Doesn’t the law say that No employer shall collect take or receive a part thereof that is paid, given to, or left for an “EMPLOYEE” by a patron? This part of the law seems to suggest that tips belong to the employee, singular, rather than all those employees who helped with serving the customer. I read nothing n the law stating that tips belong to all those who helped to serve the customer. In fact, the part that states that tips are the “SOLE” property of the employee or employees to whom it was paid, given, or left for is clearly not stating that tips are paid, given or left for all employees who helped to serve the customer. The word “SOLE” is defined as alone or singly. So while the law might explain that tips can be viewed as the property of employees, plural, the word “SOLELY” discounts the idea the the law is not attempting to protect each individual tipped employee.

    What makes no sense at all is that 351 would suggest that tips belong to all those who helped to serve the customer when the intent of the law is to protect the public form fraud in concerns to their practice of tipping. Some customers tip individuals. In fact, many customers, like myself, designate who they are tipping by physically presenting our intended recipient with a tip and amount of our choosing. My practice of tipping is, I decide who my tip belongs to and how much belongs to them. Isn’t the law supposed to protect my practice of tipping?

    While some customers may actually want to tip all those who helped to serve them, they have every ability to present each a tip as they choose, Why should I be denied my right to choose who I tip?

    Clearly 351 is being misconstrued. While the law states that every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for, 356 clarifies that the determination of who tips belong must be left up to the customer whose practice of tipping is providing such gratuities. Judges should not be taking it upon themselves to decide who the customer’s tip belongs to. Labor Code 356 seems to prohibit such acts.

    I call fraud on those judges who assume to know who my tips belongs to. The act of physically presenting an employee with a tip is substantiating evidence that the tip belongs to the employee. If there is no evidence to the contrary, the physically evidence should stand. There has never been any evidence presented proving that a tip given an employee is, instead, intended for all those employees who help to serve the customer. Is this not fraud on the public?

Leave a Reply

Your email address will not be published. Required fields are marked *

This site uses Akismet to reduce spam. Learn how your comment data is processed.