No Private Cause of Action Exists for Misappropriated Tips Under Labor Code Section 351

By August 10, 2010Articles

Labor Code section 351 prohibits employers from taking any gratuity patrons leave for their employees, and declares that such gratuity is “the sole property of the employee or employees to whom it was paid, given, or left for.” A number of Courts of Appeal have held that this prohibition, at least in the restaurant context, does not extend to employer-mandated tip pooling, whereby employees must pool and share their tips with other employees. (See Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, 1067 (Leighton); see also Etheridge v. Reins Internat. California, Inc. (2009) 172 Cal.App.4th 908, 921-922; Budrow v. Dave & Buster’s of California, Inc. (2009) 171 Cal.App.4th 875, 878-884; Jameson v. Five Feet Restaurant, Inc. (2003) 107 Cal.App.4th 138, 143).

In Lu v. Hawaiian Gardens Casino, the California Supreme Court decided yesterday on August 9, 2010 the issue of whether Section 351 contains a private cause of action for misappropriated gratuities paid to a casino employee. In Lu, a card dealer brought a class action against his casino employer based on its mandatory tip pooling policy. The casino’s policy required dealers to contribute 15 to 20 percent of their tips to a tip pool to be shared with other employees who provided service to casino patrons. The dealer alleged that this policy constituted a conversion of his tips and violated, among other provisions, section 351 of the Labor Code.

As a threshold issue, the trial court concluded that section 351 did not provide a private cause of action for employees to recover any misappropriated tips from employers. The Court of Appeal agreed that section 351 does not itself contain a private right to sue. Less than two months later, a different Court of Appeal expressly disagreed with the holding on section 351 of the appellate court below. (See Grodensky v. Artichoke Joe’s Casino (2009) 171 Cal.App.4th 1399, review granted June 24, 2009, S172237).

The California Supreme Court in Lu resolved the conflict between the appellate courts by holding that Section 351 does not contain a private right to sue. The court observed that although an aggrieved employee does not possess a statutory cause of action for lost tips, the employee might have a common law claim for conversion of property.

For any questions or comments regarding this Labor Law Update please contact attorney Michael Daly of the Daly Law Firm at 619-525-7000 or daly@dalylawfirm.co.

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