Summary of California Tip Laws
This section provides an overview of current California tip laws and their overarching philosophical objectives. All California labor law regulations and associated wage statement analysis include certain baseline principles and philosophical objectives. In the case of California tip laws, these noted objectives include the following: California’s statutory regulation of tips is established in Labor Code §351. Labor Code §351 is the only California statute addressing the subject of this article. In recent years, there have been a few California Court of Appeal decisions added to the growing jurisprudence fielding the topic of California’s tip law regime. These publications are discussed under the points below. First and foremost, Labor Code §351 "expressly prohibits employers from participating in tip pools." (Kinney v. Court (2007) 40 Cal.4th 154, 173.) This prohibition extends to all levels of the employer hierarchy including "managers, supervisors, and other agents of the employer at any level." (Ibid., citing Coleman v. Estrellita [1996] 9 Cal.4th 1, 10.) (Emphasis in original.) The prohibition only applies, however, during hours of "direct service to the public," not "while engaging in other duties such as staffing the cash register." (Kinney v. Court, supra, 352 (disapproving of Washington, D.C. case law interpreting the Fair Labor Standard Act’s tip pool and minimum wage laws.) Labor Code §351 also prohibits employers from using tipped employees’ tips to satisfy their minimum wage requirements. (Labor Code §351.) However, the statute does not specifically address whether employers may retain any portion of the tips for their own benefit. The statutory language at issue has only been reviewed twice . The initial case upholding the prohibition language of Labor Code §351 is O’Connor v. Uber Techs., Inc. (N.D. Cal., Dec. 19, 2014, No. 13-cv-03826) 2014 U.S. Dist. LEXIS 175458, at *21-22. In O’Connor, the Court interpreted the plain terms of the statute in finding Uber liable for committing "a crime" by calculating drivers’ pay in a manner which "resulted in Uber keeping drivers’ gratuities." The second case reviewing the statutory prohibition language is Baas v. Dollar Tree Store (E.D. Cal. Feb. 11, 2021) 507 F.Supp.3d 710. In its analysis, the Baas Court articulated that a tip is personal to the employee and that the policy rationale of §351 is that "the customer has a right to determine who receives a gratuity." (Ibid. (citing Kuxhausen v. Baldonado (2013) 219 Cal.App.4th 1, 16).) Lastly, the primary objective of California tip law is to fully protect the gratuities from any arriving labor costs. This rationale can be seen by looking at a few critical details of Labor Code §351. First, the statute refers to "gratuities" instead of "tips." (Labor Code §351.) As is well understood, there is a critical distinction between a tip and a gratuity. A tip is a discretionary amount given by customers for services they deem were satisfactory, or even exceptional, given the nature of their encounters with the service staff. Tips may be scant or sometimes quite abundantly distributed. On the other hand, a gratuity is a mandatory payment from the customer regardless of whether they felt the services were satisfactory. Gratuities are enforced through service fees. Service fees are mandatory once imposed. Last, there are no statutory interpretations addressing the use or designation of tip jars. There has been no limitation or maxim set, for example, on retained tip jar amounts.