In Etheridge v. Reins International California, Inc. (“Etheridge”) a California appellate court issued what is sure to be a controversial opinion and one rife with very significant consequences for the hospitality industry in California. In a 2-1 split decision, a California court of appeal for the appellate district that includes Los Angeles expanded the class of restaurant employees who can participate in an employer’s tip pool. As determined by the Etheridge court, it is no longer only restaurant employees, such as servers or bussers, who provide “direct table service” to patrons that participate in the tip pool. Now, an employee who is in the “chain of service”—meaning any employee who contributes to the service a restaurant patron receives—may participate in the pool.
Reins International California, Inc. (Reins) operates several restaurants in California. Brad Etheridge was employed by Reins as a server. Etheridge filed a class action lawsuit against Reins, alleging that the company’s mandatory tip-pooling policy, which required its servers to share tips with categories of Reins employees who did not provide “direct table service,” violated the California Labor Code. Under Reins’ policy, servers were required to pay a share of their tips to the kitchen staff, bartenders and dishwashers, who, while in the chain of service, did not provide direct table service. Reins argued that as long as tips were not shared with management (which was not alleged in the complaint), the tip pool was permissible. The trial court upheld Reins’ policy and Etheridge appealed.
The critical issue on appeal was whether a mandatory tip pool, in which tips are shared with employees who do not provide direct table service, violated California Labor Code Section 351, which pertains to gratuities and their disposition. The battleground on appeal was the portion of Labor Code Section 351 that states: “Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.”
The Etheridge majority devoted a significant amount of time analyzing an earlier California appellate decision, Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062 (“Leighton”). The Leighton opinion held that mandatory tip pools among employees who provided “direct table service” did not violate the California Labor Code. Using the direct table service platform, the Leighton court determined that bussers should share in the tips servers received. Based on the “direct table service” language in Leighton, Etheridge argued that the Reins tip pool was illegal, because, in addition to bussers, he was forced to share tips with kitchen staff, dishwashers and bartenders, none of whom provided direct table service to patrons. The Etheridge court rejected this argument as involving too narrow a reading of Leighton. “Thus, it is apparent that although the Leighton court used ‘direct table service’ language when discussing bussers, the court’s holding included bartenders, and its rationale for that holding extended to all employees who contribute to the service of the patron.” Etheridge, supra, at 20. Second, the Etheridge court declined to limit the participants in a mandatory tip pool to those who “provide direct table service” because such a limitation “would allow a busser to participate in a tip pool if the busser clears the plates while the patron is still seated at the table, but not to participate if the busser waits until after the patron has departed .?… This illogical result casts doubt on any ‘direct table service’ requirement.” Id.at 21.
Finally, the Etheridge court determined that public policy mandated extending participation in a tip pool to “all employees who contribute to a patron’s service.” The policy reasons include that a patron tips on all of the services received, not simply for the service received from employees the patron can see. “Dishwashers and other kitchen staff would be encouraged to give their best possible service as they know they will participate in the financial rewards if the customers are pleased with their work, even though the customers do not personally see them doing it. And a mandatory tip pool makes certain that these employees receive their fair share when the patrons are pleased with their service, but have no way to tip them directly.” Id.at 22-23.
The final point addressed in Etheridgewas to confirm that the tip pool restrictions in the federal Fair Labor Standards Act did not provide guidance, much less controlling authority, in interpreting tip pooling under California law, because of the significant differences between California law and federal law with respect to tip-pooling restrictions.
Etheridgeis welcome news for the hospitality industry in California, because, at least for the time being, employer-mandated tip pooling is extended to participants who contribute to a patron’s service, even if not providing direct table service. A word of caution: Both the concurring and dissenting opinions urged that the California Supreme Court grant review of the case. It is likely that Etheridge and the powerful interests that supported him on his appeal, including the California Employment Lawyers Association, will petition the California Supreme Court for review.