New York Hospitality Wage Order Goes Final: New Rules Effective 1/1/11

Posted on December 16, 2010 by Noel Tripp

Yesterday, the New York State Department of Labor issued the final version of the new Hospitality Industry Wage Order, as previously discussed here and here. The final Wage Order, substantially revises various long-standing New York industry rules, including, the tip credit amount, permissibility of tip pooling, and spread of hours calculations. The Final Wage Order includes only a few changes from the NYSDOL’s Proposed Order, which was issued for notice and comment in October:

  • Defining a “service employee” as an employee “who is primarily engaged in providing direct personal service to guests, patrons or customers and who regularly receives tips from such guests, patrons or customers.”; and
  • Revising language industry employers are required to include in bills, contracts or other writings to customers in order to convey the precise nature of any mandatory gratuity or service charge. These regulations are an effort to provide clarity to service charge requirements in the wake of Samiento v World Yacht, 10 NY3d 70 (2008).

We will provide further detailed analysis of the new Wage Order – as well as information about upcoming Jackson Lewis seminars on its implications – on www.JacksonLewis.com shortly.

UPDATE:  On December 16, 2010, the Department announced that the final Wage Order issued on December 15, 2010 had been disseminated in error.  The Department also announced an “implementation period,” under which employers have until March 1, 2011 to reflect the changes required by the new Wage Order in the payroll systems.  However, employers availing themselves of this implementation period must, as of the first pay period after March 1, 2011, retroactively pay any additional wages owed under the new Wage Order for the period from January 1, 2011 until such payments are made. 

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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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Federal Court Reiterates That Banquet Servers Can Satisfy Section 7(i) Exemption

Posted on June 18, 2010 by Noel Tripp

Among the many ambiguities in the FLSA’s often-confusing overtime exemption for commissioned employees of retail or service establishments (known as the “7(i)” exemption), is courts’ varying interpretations of what constitutes a “commission.” This has long been particularly vexing for the banquet industry, where it is customary to charge a mandatory service charge, then distribute that service charge in whole or in part to the banquet service staff. Is such a payment a “gratuity”, or can it be a “commission” within the meaning of 7(i)?

For approximately 20 years, the leading case directly on point was Judge Posner’s decision in Mechmet v. Four Seasons Hotels, Ltd., 825 F.2d 1173 (7th Cir. 1987), in which the court held that such a distributed service charge is a commission for purposes of 7(i).  A second federal court, the Southern District of Florida, has now issued a decision consistent with Mechmet. Judge Marcia Cookeheld that such payments are commissions for purposes of 7(i), rejecting the claims of a banquet server who alleged that he received a paltry hourly wage and that his service charge distributions were “tips”, thereby creating violations of the FLSA’s minimum wage and overtime provisions. Nascembeni v. Quayside Place, 2010 U.S. Dist. LEXIS 58707 (S.D. Fla. June 11, 2010). The Judge noted that the service charge payment by the banquet customer was non-negotiable and involuntary. Thus it was a service charge, not a tip, and distributions from that mandatory charge were commissions for purposes of 7(i).   Id. at * 6-7. 

Hospitality employers utilizing 7(i) should be heartened by the decision, but must remain wary of any practices which might undermine the characterization of supplemental payments for service as mandatory service charges under the FLSA.

 
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