While there are federal laws, such as the Fair Labor Standards Act (FLSA) to make sure that employers to not abuse their workers, state laws also exist and the requirements placed on employers may differ from state to state. For example, most states allow companies to include a service charge on their bills, but these states may differ in their requirements for providing these extra charges. Unlike a gratuity, a service charge does not get paid to the wait staff of a facility. Instead, the extra charge goes to pay for things like set up and ambience. Many customers are unaware of the difference, though, and will fail to leave a tip when they see a service charge, thinking that the charge is an automatic gratuity. In order to prevent this, New York state law requires establishments to specify that a service charge will not be paid to the servers.
Hawaii also has state labor laws which govern the use of service charges. In that state, companies are allowed to include a service charge on their bills only if the charge gets paid directly to employees or if the company explicitly states that the money is not going to employees. Two employees working at a Ritz-Carlton Hotel in Hawaii allege that the hotel chain included a service charge without complying with either of these two requirements. As a result, employees working as waiters, servers, or cooks, often went without tips.
Because employees working in service positions, such as waiters and bartenders, generally receive tips, the FLSA allows employers to pay these workers a lower minimum wage. However, the law assumes that the employees’ tips and wages reach at least the federal minimum wage of $7.25 per hour. If this is not the case, then the employer is required to make up the difference. If employers are still withholding service charges when the employees are making less than minimum wage, then the employees have a right to try to collect their missing wages.
The lawsuit was filed by two food and beverage service workers on behalf of all similarly situated employees working for the hotel chain. The lawsuit sought several different types of damages, including recovery of the money charged from the service charges. It also asked for a cy-pres award, meaning that, if not all of the eligible employees come forward to claim their share of the settlement, then their share may go to a charity or some other cause which may indirectly benefit class members.
The Ritz-Carlton Hotel Company agreed to settle the wage and hour class action lawsuit for $1.8 million.
Courts have been seeing an increase in wage and hour class action lawsuits regarding service charges lately. It is generally believed by employment attorneys that the Great Recession had an effect on both an increase in violations of labor law and employees’ silence on the matter. Now that the job market has begun to stabilize, employees have begun speaking out and demanding that they be treated fairly and paid fair wages.