A Risk Management Tip

By:  Daryl Lapp
Edwards Wildman Palmer LLP
Boston, Massachusetts

It is not uncommon for colleges and universities to provide catering and other food or beverage services to paying patrons in a variety of settings:

  • weddings, conferences and other functions which are catered by the institution’s dining services;
  • events at on- or off-campus conference centers;
  • group events or simply individual meals at faculty clubs; and so on.

It also is not uncommon for the institution to have a “no tipping” policy in place for these events or venues:  the wait staff are paid an appropriate, flat hourly rate with no expectation of tips and in fact with the understanding that tips are not permitted.

While this common scenario, as described, is perfectly lawful, significant problems can arise if the institution includes a “service charge” as part of the cost of the event or individual meal.  Here in Massachusetts, several colleges and universities currently are facing or recently have faced class action suits filed on behalf of wait staff for alleged violations of the Massachusetts Tips Law, Mass. Gen. L. c. 149, sec. 152A.

Under the Tips Law, employers may not retain tips given to wait staff; in addition, employers who impose a service charge must remit that charge to wait staff even if it is undisputed that the service charge was not in the nature of a gratuity (for example, if the charge was intended to cover overhead expenses) and even if it is undisputed that the wait staff shared that understanding.  Massachusetts courts have held that the term “service charge” is synonymous with the terms “tip” and “gratuity” and therefore any service charge must be paid over to wait staff regardless of the intent or understanding of the employer and the wait staff, and regardless of whether such an outcome results in a “windfall” recover by the wait staff.

The exposure for the institution in such cases can be significant.  As with many violations of wage and hour laws, the institution generally will face liability not only for the amount of wrongfully withheld wages but also multiple damages and attorneys fees, in addition to the costs of defending the litigation.

Hence this tip:  Review the law in your state relative to wait staff tips to see if it contains a strict liability provision for “service charges” or the like.  If it does, review the policies and contract forms that are used by dining services, clubs and other providers on your campuses to see whether they include “service charges” or other charges that might have implications under the tips statute.  If such an issue exists, don’t let a plaintiffs’ class action attorney be the one to discover it.

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