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Legal Updates

Massachusetts Tip Pooling Lawsuits On The Rise

Recent cases brought under the Massachusetts “Act to Protect Tipped Employees” (the “Act”), which was enacted in 2002, suggest that employers are not consistently following the Act’s limits on the types of employees who may participate in a “tip pooling” practice.  Specifically, the Act limits tip pooling arrangements to “service” employees, including restaurant wait staff, baggage handlers, hairdressers, taxicab drivers and others who depend largely on tip income for their livelihood.  Pursuant to the Act, it is unlawful to require service employees to share tips with employees who do not provide a service directly to patrons.  Unfortunately, one employer was recently hit with damages expected to exceed $2.5 million for violating the Act.

Since the Act went into effect, many Massachusetts employers have defended legal actions brought under the Act.  In fact, nineteen cases alleging a violation of the Act have been filed in Massachusetts since 2002.  Eleven of these cases are currently pending in state court, one of the cases has resulted in a jury verdict, while seven have settled.

In the first such case to go to trial, an Essex County Superior Court jury recently found Hilltop Steak House liable for distributing tips to managers in violation of the Act and for terminating the employment of four waitresses who complained about losing a percentage of their tips.  The damages in the Hilltop case are expected to exceed $2.5 million, including attorneys’ fees and interest, because the jury found that the harm suffered by the waitresses was three times the initial damages request.

In another case now pending in Massachusetts, three restaurant servers and the maitre d’ at the Locke-Ober restaurant in Boston complained that a new tip policy violated the Act and that they were unlawfully fired in retaliation for their complaints.  Two of the servers brought their complaints to the attention of the Office of the Attorney General for the Commonwealth of Massachusetts.  All three of the servers initially complained to the maitre d’, who in turn, relayed their complaints to management.  As an initial matter, the restaurant filed a Motion to Dismiss the maitre d’ and the server from the case, because they complained to management.  However, on appeal, the Supreme Judicial Court held that the case could proceed because it was inconsequential whether the servers made a formal complaint with the state or lodged a complaint internally to management, finding that any other conclusion would violate the spirit and letter of the Act.  The Court, however, did rule that the maitre d’ was not covered by the Act because he was merely conveying the complaints of the servers.

As mentioned in our May 2005 Legal Update article “Massachusetts Limits Tip Pooling Policies To Service Employees,” employers should ensure that they are in compliance with the Act and make all managers aware of the potential fines that could be issued for violating the Act.  Even if an employee does not file a lawsuit, the company could face fines of up to $25,000.  Thus, and given the recent jury verdict, it is recommended that restaurants and any other employers in services industries, develop and enforce an appropriate written policy governing the pooling of tips.  In addition, management should be trained to recognize and investigate any staff complaints.

Please do not hesitate to contact an attorney at the Firm with any questions about the Act, developing a written tipping policy and/or providing training to employees and managers.