Litigation over food-and-beverage service charges is increasing. A California appellate court recently held that mandatory service charges added by banquet facilities to their contracts may need to be paid to banquet service employees essentially as a gratuity. Lawsuits also have been filed recently against food delivery provider DoorDash by customers in California and the District of Columbia government alleging that the company improperly kept part of tips provided to delivery drivers, misleading customers who thought that their entire tip would go to the driver.
In the California appellate case, O'Grady v. Merchant Exchange Productions, the employer added a 21 percent service charge to all banquet contracts for food and beverages. The company did not pay any of the service charge to servers. Rather, it distributed some of the money to managers and nonservice personnel and retained the rest. The plaintiff, a banquet server and bartender, sued her employer claiming the practice violated the California Labor Code and amounted to intentional interference with advantageous relations, breach of implied contract and unjust enrichment.
The employer argued that no such legal claims could be pursued, relying on previous cases stating that mandatory service charges are not gratuities under California Labor Code section 351. That statute provides that all tips and gratuities left by customers for service employees are solely the property of the employee and that employers may not take any portion of such gratuities. The lower court agreed with the employer and dismissed the claim.
Previously published in Hotel Management.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.