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In the past few years, a surge of restaurant and coffee shop employees have filed lawsuits alleging that their employers have permitted illegal "tip pooling." The California Labor Code prohibits employers and their agents from sharing in or keeping any portion of a gratuity left for or given to one or more employees by a patron. While employers may require that employees share tips with other staff, the distribution is strictly limited to those employees who provide direct service to the patron. Tip pooling may not be used to compensate owners, managers, supervisors or anyone not providing a direct service including dishwashers, cooks and chefs.

The following are helpful hints for avoiding liability for tip pooling claims.

1. Inform employees of their rights regarding gratuities. Specifically, any money over the amount due for the goods sold or services rendered left by a patron for an employee that provides a direct service to a patron belongs to the employee and shall not be used to compensate the employer. Gratuities are not part of regular rate of pay and California employers may not use gratuities as credit toward obligation to pay the minimum wage.

2. Notify patrons of any tip pooling policy. Expressly state - either on the menu, the receipt or tip jar - that any gratuity left may be distributed according to a tip pooling arrangement unless the patron affirmatively indicates that the gratuity should go only to one person.

3. Make it clear to supervisory employees that they are prohibited from sharing in tip pools. Persons other than the employer having the authority to hire or discharge any employee or supervise, direct or control the acts of the employee are not permitted to share in tip pools.

4. Double check credit card slips. Make sure that the employee is paid the full amount of gratuity that was indicated by the patron on the credit card. The employer may not make any deduction for credit card processing fees or costs that are charged to the employer by the credit card company. Also, the payment of gratuity made by the patron using a credit card must be paid to the employee no later than the next regular payday following the date the patron authorized the credit card payment.

As a general reminder, each case has unique facts and circumstances and may present issues not addressed in this alert. Employers should always seek competent legal advice before implementing any new policies. If you have any questions regarding this or other business related or employment legal matters please always feel free to contact Porter Scott Attorneys.