California has a long tradition of being employee-friendly: covenants not to compete by employees are unenforceable, and the minimum wage is usually higher in California than that nationally. The same is true for professions with tips, which may be the next “hot” area of labor law in California. Employers whose employees earn tips had best get the law right.

Much of California’s law about tips is found in Labor Code 351. It expresses the philosophy in California very succinctly: “Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.” Even if management establishes a mandatory “tip pool,” management cannot dip into the pool – it is only for the employees who waited on the table. California employers also cannot reduce the minimum wage to account for tips – employees have to make at least the California minimum of $8.00 an hour before tips: “No employer . . . shall . . . deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer.”

Here are some things that every California employer should do if their employees receive tips:

○ Tip pools are legal, see Leighton v. Old Heidelberg, Inc., 219 Cal. App. 3d 1062 (1990), but employers and managers cannot participate.
○ Those who earn tips have to spent all or almost all of their time doing tipped work; if they spend more than 15% to 20% of their time doing work unrelated to tips, like washing dishes, stocking, setting up a room, and the like, they have to be paid for that work in addition to the work that allows them to collect tips.
○ Make sure that tipped employees are getting more than $25 a month in tips.
○ California employers have to bear the entire cost of a credit card transaction that includes a tip – the cost of credit card transaction (often 20 cents plus about 1.5% of the total transaction) cannot be apportioned to the employee.
○ Payment of tips from credit card transactions have to be made by the “next regular payday following the date the patron authorized the credit card payment.”
○ Keep accurate records of both tips received and tips paid to employees – and make sure that your books are always ready for inspection by the employee.
○ Don’t try to get a “private agreement” from the wait staff, to avoid California’s regulations. California already anticipated that, and voids such agreements.

Here are the incentives for the employer to get it right: first, the employer can be fined up to $1000 for each violation, and serve up to sixty days in jail. If the employer shortchanged dozens of employees for dozens of paychecks, the penalty could be very high, indeed. Moreover, lawyers for employees can use these laws for as evidence of unlawful business practices, which can serve as the basis for an action for civil penalties under the Private Attorneys General Act.