Legal Updates

Summer's Here, And The Time Is Right (For Reviewing The Massachusetts Tip Pooling Law)

Recently, there has been much talk about tips—from proposals to exclude tips from taxable income, to increased pressure on patrons to tip employees at an ever-increasing variety of establishments. It is no exaggeration to say that the way that Americans tip—and the ways in which they are expected to tip—has undergone a significant shift since the pandemic.

This may lead some business owners who employ tipped employees to reconsider the ways in which they distribute tips to their employees. However, after a failed ballot measure in 2024 that would have changed the way tips can be distributed among employees, Massachusetts law regarding the treatment of tips has remained essentially unchanged for two decades. It is important, then, for Massachusetts employers whose employees receive tips to refamiliarize themselves with state-law requirements on this topic.

Employers’ Obligations

The Massachusetts statute regarding tips and tip pooling (the “Tips Act”) is intended to ensure that service employees receive all monies that customers intend to leave as tips. To accomplish this goal, the Tips Act imposes a number of obligations on employers with tipped employees (including restaurants, bars, country clubs, salons, and other establishments in which tips are customary).

Specifically, the Massachusetts Tips Act prohibits employers from doing any of the following:

(1) making any deduction from a tip given to an employee by a patron, or retaining tips given to the employer by patrons for distribution to employees;

(2) maintaining a tip pool as to which any portion of the pooled tips is distributed to any person who is not a (a) wait staff employee, (b) bartender, or (c) other service employee;

(3) allowing an employee with any degree of managerial responsibility to participate in a tip pool, even for shifts in which a managerial employee assists service employees in serving customers; and

(4) charging a service charge or tip to a patron and then failing to remit the collected service charge or tip to the employees who provided service to the patron.

Examples of employees who are not “wait staff, bartenders, or other service employees” – and, therefore, may not participate in a tip pool – include dishwashers and cooks who do not directly provide services to patrons.

What this means is that even a “fast-casual” restaurant – in which service employees do not wait tables and do not qualify for the reduced minimum wage available for certain tipped employees — may not require that service employees share tips with “back of the house” employees (or any other non-service employees).

Employers found to have violated the Tips Act are liable for significant damages that include much more than the disputed tips – including triple damages, attorneys’ fees, and court costs. Given that these suits are often styled as class actions, employer liability can run into the millions of dollars.

Moreover, the Tips Act permits the Commonwealth’s Attorney General to assess penalties of up to $25,000 per violation. Just this year, the Attorney General assessed a fine of over $1.8 million against Boston restaurant Zuma for allowing certain managerial staff to participate in a tip pool between 2022 and 2024.

A Safe Harbor – But Be Careful

The Tips Act contains a “safe harbor” provision that permits an employer to retain a “house fee” or “administrative fee” imposed on a patron in addition to, or instead of, a service charge or tip.

In order to take advantage of this safe harbor, the employer must provide “a designation or written description of that house or administrative fee, which informs the patron that the fee does not represent a tip or service charge for wait staff employees, service employees, or service bartenders.” If an employer fails to provide such a designation or description to a patron, the funds are considered “service charges” under the Tips Act and must be distributed to wait staff employees, service employees, and/or service bartenders.

Failure to comply with these strict requirements can result in severe consequences for employers. By way of example, in 2021, the Supreme Judicial Court ruled that a country club violated the Tips Act by not distributing monies collected from members that were sometimes referred to as an “administrative fee” (which typically would not fall under the Tips Act) and a “service fee” (which would).

Practical Tips For Avoiding Tips Act Liability

Employers can minimize their chances of being held liable under the Tips Act by following these practical suggestions:
 

• Implement a clear, written tip-pooling policy, and ensure that the policy is followed consistently.

• Pay out all tips that employees receive from patrons.

• Pay out tips only to eligible employees. Do not allow supervisors, managers, or non-service employees to share in tip pools with service employees.

• Consider eliminating “administrative” or “house” fees. If such fees are essential, take one or more of the following steps:   
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  • Provide a written description of the administrative or house fee, stating that the fee does not represent a tip or service charge for wait staff employees, service employees, or service bartenders. This written description should be consistent and should appear on any document that a patron is likely to see, including menus, bills or invoices, and signage. 
  • If a written contract is used, then be sure to include in the contract a provision stating that the patron acknowledges the administrative or house fee is not a tip for wait staff employees, service employees, or service bartenders.
  • Consider making any administrative or house fee a flat amount, rather than a percentage of the total bill (which may traditionally be viewed as a tip).

• Distribute to service employees any and all “services charges” collected.

• Conduct training for managers to ensure compliance with the law and the employer’s policy and practices.

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As always, please do not hesitate to contact one of our Firm’s employment attorneys with any questions regarding tip policies or practices, or compliance under the Massachusetts Tips Act.