Good morning, welcome to my latest edition of Monday Morning Briefing. I hope you all got a chance to enjoy a bit of this lovely May weather we have been having – I know I personally am still enjoying these beautiful California wildflowers. But it is still busy out here in the world of California employment law, so I will jump right in.
CONFUSION ABOUNDS OVER SERVICE CHARGES AS LA TIMES REPORTS ON CITY INVESITGATING LOCAL RESTAURANTS FOR “KEEPING SERVICE FEES”
So here we go again. I know I just wrote about a trial court decision in San Francisco – a decision impacting services charges on a catering contract at the Marriott hotel in the Bay Area. But with this LA Times article and this recent LA City Attorney investigation getting so much attention, and several of you reaching out to me for clarification on this issue, again, I felt it was worth drilling down into more detail, again.
For those of you who did tune into the lovely Kickfin webinar we did last Monday, I did cover this in very brief detail, just to distinguish service charges and surcharges from tip pools and tip sharing. I also wanted to make sure that everyone knew the difference between service charge and that thing that SHOULD remain nameless but too often doesn’t – an “auto-grat” or “automatic gratuity.” The reason I say it should remain nameless is because THERE IS NO SUCH THING. You CANNOT MANDATE A GRATUITY. Once you do, it becomes a service charge, or sort of. Except you probably haven’t done the service charge correctly, because you have used the term “gratuity.” So please, don’t. Do not EVER use the term auto-grat. I hate to even write it here. I mentioned it last week just to say the same thing, and then I STILL got questions about it; I am trying to make it doubly clear – DO NOT USE THE TERM AUTO-GRAT. It is an inaccurate, unlawful term. You cannot mandate something that is, by its terms, discretionary. And that is what gratuity means. So, you either allow patrons to leave tips or gratuities, or you mandate a service or surcharge, or you do both. But you treat them each differently.
For purposes of this discussion, I am not going to discuss tips or gratuities. That was on the webinar. I am going to discuss services charges, surcharges, service fees – items that restaurants, hotels, limousine operators, caterers, some other vendors mandate on their service contracts to be paid by guests, clients or patrons.
Historically, the general rule has been that restaurants and other vendors can assess a service charge or surcharge on a menu or contract, take in 100% of the service charge as income, and then choose what they want to do with that income. They can also pay all or part of that money out to the employee or employees who perform on the contract or serve the guests or patrons. That money is income to the restaurant/vendor, who must also pay sales tax on it (unlike money that comes in as tips or gratuities, where the employees report their own income). IF the restaurant pays out the money to the employees, it is wages to the employees, and it impacts their regular rate of pay, which impacts their overtime rate, their break pay rate, and their sick pay rate. It must be reflected on the employee’s wage statement appropriately as well. Doing any of this incorrectly can be grounds for wage and hour litigation.
In most cases, the restaurant can choose to decide if it wants to pay all of this money to its employees or choose to keep all or some of it. However, it is not quite as simple as all that. First, you need to see where you are, because there may be a statute or local ordinance that requires that the employer pay out all of the service charges to the employees. Which is the case with certain hotels in the city of LA, also, in West Hollywood and Santa Monica.
Indeed, the restaurants being investigated in the LA Times article are all connected with hotels in the city of Los Angeles, and that brings them under the first ordinance. But restaurants in the City of Santa Monica or West Hollywood are also governed by such an ordinance, which state that they must pay out 100% of any money they take in under a service charge to their employees and make clear how they are paying out that money to the employees who receive that service charge. I will tell you that I am sure there are restaurants in these municipalities who are confused by these ordinances, because I was in a few over the last couple of weeks, and judging by the language on their menus, they are NOT doing it right (if I am confused, I guarantee their employees and other patrons are, too).
Second, remember our friends up in San Francisco – even where you are not in a jurisdiction like WeHo or SanMo, if the courts or City Attorney finds that the language in your contracts or menu is not clear (and like I said, I was confused by the language this weekend), the default is always going to be that all of the money goes to the employees. I know I said this before, but it is worth repeating – TRANSPARENCY. If you plan to assess a service charge or surcharge and keep any portion of that money, you should be 100% transparent with guests and employees about that fact that you are retaining a portion, on the menu, guest check, website, in bold letters.
And run your draft language by me. Don’t take chances on this stuff, folks. It’s a big area for lawsuits right now.
WAYFAIR HIT WITH CLASS ACTION SUIT OVER UNPAID LOG-ON TIME IN MASSACHUSETTS
Really, I just wanted to show you all that California is not the only place getting these crazy lawsuits. In fact, I wake up to reports every day of these kinds of wage and hour lawsuits being filed across the country, in EVERY state. (okay, that’s not quite true. The Law 360 reports come in around 1am and I’m usually still awake, so I actually don’t “wake up” to them. The rest is true).
But I am also highlighting this suit because it is very typical of the kinds of lawsuits we have been seeing now for a while, ever since we here in California saw that crazy Troester v Starbucks case in 2018, where a shift lead got paid for the time it took to lock the door and turn on the alarm after he punched out. Here, in the Wayfair case, Madison Payseur, a customer service rep who worked remotely, is suing on behalf of herself and her fellow employees for the time it took to her to log on and boot up her computer, before her computer turned on and she could log in to a virtual private network (VPN) and be paid for her time. None of that start up time was paid, and Ms. Payseur says she is due regular and overtime pay in violation of Massachusetts law.
Of course, these cases have been brought under California law as well, and here, this would also trigger numerous penalties under the Labor Code, as well as provide fodder for a PAGA lawsuit. How much time does it take to start up a computer? Easily as much as it took Mr. Troester to turn on the alarm and lock the door.
How do you handle the few minutes on either end of the workday like this for your non-exempt employees? One way is to have your systems add a few minutes each workday to cover this time. Or you can have your employees add the time in themselves.
Some employers have been adding in five or ten minutes a week onto their employees’ time to cover for any potential “off the clock” work since the Troester case was decided. If you are going to do this, don’t hide the fact. Announce and account for it, and advise your employees that if they believe they have worked more than that in any week for any reason, they should so advise you. Then, god forbid if we do wind up in litigation, we can get credit for that time. We would also need to explain for the discrepancy between their time paid and their time on their time clocks. But we see “off the clock” claims in MOST wage and hour litigation, sometimes thrown in at the last minute, even at mediation. So finding a way to counter these pesky allegations continues to be one of my never-ending projects.
HEARING IMPAIRED PART TIME DRIVER AWARDED $2 MIL WHEN FED EX FAILED TO FOLLOW THEIR OWN PLAN TO ACCOMMODATE
This decision broke my heart on so many levels. Every time I try to tell people that employers aren’t all bad, and I feel like we are making headway to change the perception that companies really do try to do the right thing, we get reports of some company just pulling a bonehead move like this. This case never should have needed to be filed, because this should have been handled so differently.
Here, Fed Ex started off doing the right thing – they hired a hearing impaired driver (yay, Fed Ex!), and came up with an appropriate accommodation (again, yay, Fed Ex!), with appropriate steps to help this gentleman get key meetings, safety seminars and trainings all handled with an approved ASL interpreter via video conferences. All good, right? Only, none of it ever happened. Despite the best laid plans put into place at the top, the people in management on the day to day operations apparently did not carry it out, and this employee was left hanging without any support.
What do I always say? We are only as good as our weakest – link, our managers. And if they do not carry out what upper management puts into place; if they do not know our policies; if they make our employees work off the clock, edit time without reason, have employees work through breaks, treat employees without respect – it doesn’t matter what we have tried to accomplish. It undermines all the work we try to do. It is why we have to constantly follow up our teams, do training, walk the floors, have zoom meetings if we are remote, STAY IN TOUCH. And if you have several locations, GET OUT THERE. Talk to your employees.
And I’ll say it again, anonymous reporting. One of my best run clients just told me about an anonymous report they got recently about a rogue manager. You would always rather find it out that way than by getting a lawsuit like Fed Ex did. www.kendr.com. Just saying.
Okay, I am going to end on this little bit of self-care note for you all. You know how I always tell you all to put your oxygen masks on before you can help others. Well, I have been seeing a chiropractor because my back had gotten so out of control bad. I’ve had sciatica for decades, but in the last five or six years, my upper back, shoulder and neck have gotten increasingly tight and sore, to the point where I couldn’t even turn my head. I changed my pillow, got regular massages, used heated neck pillows, everything. Finally, a few weeks ago, my chiropractor asked me how much water I was drinking. “I could probably drink more, why? I used to have this big bottle with the lines on it, but I gave that up years before the pandemic,” I admitted. He told me to try increasing my intake. I thought, what the heck, water is good for me anyway.
So I bought one of these water bottles that marks off how many ounces you need to drink an hour, so you drink two full bottles = 64 oz a day. I did the first one on a Sunday. And by the end of THAT DAY, that FIRST day, my neck probably felt 85 – 90% better. I was like – WTF? I did it again the next day, which was Monday, and the day I see my chiropractor. I see him at the end of the day, which was now Day Two. Same result. I went in and told him the story. “This feels like a trick,” I told him. “This cannot be the fix. I’ve been in pain for YEARS. You’re telling me that the problem all along was I was just dehydrated??” Then he explained how we live in a desert, and our bodies are made up of so much water, and especially as we age, we need a lot of water. He said that it primarily has to do with increasing the amount of blood that reaches the upper part of the body, including the brain. He also said I should have more energy from drinking more water, and it will help all my organs operate better.
My brain? What would have happened if my brain continued to not get enough blood? And my organs? I feel like this was a huge red flag for me.
Bottom line, it’s now been about three weeks, and my neck feels almost pain free. My skin looks significantly better as well. And I DO have more energy. I’m sleeping much better, too, because I am not in the pain I was at night. Who knew that water, something we can get for FREE (at least in this country), could be so life changing. I’m willing to bet that several more weeks will probably bring more changes, at least to my skin. Maybe to my weight, other things.
So there you are – free wellness in addition to legal tips for you on this Monday. Go forth and spread the news. And don’t forget to breathe along with drinking that water.
Stay well, my friends.
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