New York State Department of Labor Issues Pro-Employer Gratuity Distribution Guidance

Posted on June 21, 2011 by Noel Tripp

New York employers have struggled with the New York State Department of Labor’s view that all gratuities must be distributed on a daily basis, regardless of whether they are collected in cash or via credit card and regardless of employee preference.  Late last week, without notice, the NYSDOL modified this position.  Effective immediately, New York employers may include credit card tips on an employee’s next paycheck, with or without consent of the employee, as long as the tips are provided by the next regular payday. In so stating, the Department also reaffirmed that an employer may subtract a pro-rated share of any fees imposed by the credit card company.  Further, upon request of an employee, a New York employer may even include cash tips in the paycheck as long as the gratuities are specifically noted on the paystub, and the employer maintains the mandated records of gratuities received by employees.   The full text of the NYSDOL’s posting is below.   

Employers with any questions regarding interpretation of, or compliance with, this provision should consult with counsel, due to the significant potential damages arising out of wage and hour violations.

Payment of Tips Received By Credit Card & Cash

When tips are given by customers via credit card, the employer must pay the employee the amount due no later than the next regularly scheduled pay day. The employer may subtract from the employee's tips the pro-rated share of the charge levied by the credit card company. An employer remitting tips to an employee must include a breakdown between the tips and the wages on the employee's wage statement, which must meet all other requirements for wage statements. This position reflects a change in DOL policy as set forth in DOL opinion RO-08-0032 related to this issue. That opinion is hereby rescinded.

When customers pay tips in cash, employers may, as a service to their employees, allow employees to leave cash tips earned over the course of a pay period with the employer. The employer must issue a tip payment for the total amount of those cash tips along with any wage payment for the same pay period. A request by an employee for the employer to provide this service must be voluntary, and the agreement cannot be a pre-condition of employment or a condition of continued employment. The employer must still keep a daily record of the tips earned by each employee provided this service, and have those records available for inspection by the employee and/or the Department. The wage statement provided with the tip payment must contain a breakdown of tips and wages, and meet all other requirements for wage statements.

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NY Appellate Court Holds That World Yacht Applies Retroactively

Posted on June 21, 2010 by Noel Tripp

In Samiento v World Yacht, 10 NY3d 70 (2008), the New York Court of Appeals held that whether a labeled service charge is a “gratuity” for purposes of N.Y. Labor Law § 196-d that must be distributed to service staff depends on the “reasonable customer’s” understanding. One of the many questions unanswered by the decision is whether this standard applies only prospectively to § 196-d compliance following the Court’s February 2008 ruling. In a blow to industry employers, the Appellate Division’s First Department, the intermediate appeals court encompassing Manhattan, has ruled that employers can be subject to liability for undistributed service charges prior to the World Yacht decision. Ramirez v Mansions Catering, Inc., 2010 NY Slip Op 4857, 2 (N.Y. App. Div. 1st Dep't June 8, 2010). A New York federal court is currently considering the same issue. 

Generally, the question of retroactivity turns on whether a new judicial decision constitutes “the creation of a new legal principle.” Id. at * 1. If it does not, then it is simply an interpretation of the law, and has retroactive application. In Ramirez, the Court observes that the question answered by World Yacht had been acknowledged but, importantly, not answered by the Court of Appeals’ earlier opinion on the same subject. Id. at * 2 citing Bynog v Cipriani Group, (298 AD2d 164 (2002), affd as mod 1 NY3d 193 (2003). Because the legal issue addressed in World Yacht – namely “whether mandatory service charges could constitute "gratuities" under Section 196-d” – had not been resolved previously, World Yacht “was not a departure from existing law” and did not constitute a “new rule.” Id.  This conclusion ignores the fact that the entire industry generally believed that, consistent with federal law, the combination of using the term “service charge” and taxing the collected monies provided an employer with the right to retain the collected monies in whole or in part.

Food service and hospitality industry employers have been focused on this issue for over 2 years. While all such employers should ensure their current practices fully comply with this decision, at least based on this decision, liability can be imposed for periods prior to February 2008 within the 6 year statute of limitations. 

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