Jeff Ruzal Quoted in “No Fine Print: Service Fees, COVID Surcharges & Tipped Staff”

Banquet halls, restaurants and other hospitality businesses should ensure they are clear about who benefits from service fees, or the increasingly common COVID-19 surcharge, to avoid violating regulations for tipped staff, attorneys say.

Massachusetts' top appellate court recently found that a country club shortchanged its staff by keeping part of a fee charged to patrons for events, reversing two lower courts that had sided with the club. …

This ruling comes at a time when a lot of hospitality employers are facing increased operational costs and may assess fees such as a COVID-19 surcharge to help keep their business afloat, said Jeffrey Ruzal, a member of management-side firm Epstein Becker & Green PC.

"Keeping in the spirit of the specific details required in identifying a charge in New York, Massachusetts, and elsewhere, [it's] always better to describe exactly what that charge represents, where it's going, who's retaining it," he said. "And to the extent practical and feasible, why it's being assessed."

The "Reasonable Customer" Is Always Right

A unique aspect of this type of tipped wages law is that the notice concerning the charge must go to the customer, not necessarily the employee, Ruzal said.

"It's the reasonable customer who has to understand whether or not the extra charge was intended to be a gratuity that should be payable to the employee or not for the service that was provided," he said.

An employer can charge an administrative fee that goes to the house, but they just have to be clear about the intent of the charge and where that money is going from the customer's perspective, Ruzal said.

New York stipulates that the notice statement must appear in a font size similar to the surrounding text but nothing smaller than a 12-point font.

"You can't have the quite literal small print," Ruzal said. …

"Having the prescriptive language on the menu or bill or invoice or agreement is really the recommended practice to avoid coming within scrutiny of potential tip diversion," Ruzal said.

Ultimately, it's on the employer to make sure the customer understands.

"I think it's important though to recognize that hospitality businesses need to be sensitive to how such fees are labeled," he said. "And a quote unquote COVID fee with nothing more could mean a lot of different things."