Case Name: BRAD ETHERIDGE, Plaintiff and Appellant, v. REINS INTERNATIONAL CALIFORNIA, INC., Defendant and Respondent
Court: Court of Appeal of the State of California
Jurisdiction: California
Decision Date: 2009-03-27
Citations: 172 Cal. App. 4th 908
Docket Number: No. B205005
Parties: BRAD ETHERIDGE, Plaintiff and Appellant, v. REINS INTERNATIONAL CALIFORNIA, INC., Defendant and Respondent.
Judges: 
Reporter: California Appellate Reports, Fourth Series
Volume: 172
Pages: 908–938

Head Matter:
[No. B205005.
Second Dist., Div. Three.
Mar. 27, 2009.]
BRAD ETHERIDGE, Plaintiff and Appellant, v. REINS INTERNATIONAL CALIFORNIA, INC., Defendant and Respondent.
Counsel
Kingsley & Kingsley, Eric B. Kingsley, Darren M. Cohen and Brian Levine for Plaintiff and Appellant.
Spiro Moss Barness and Dennis F. Moss for California Employment Lawyers Association as Amicus Curiae on behalf of Plaintiff and Appellant.
Thomas & Associates and Russell J. Thomas, Jr., for Defendant and Respondent.
Law Offices of Steven Drapkin and Steven Drapkin; Paul, Hastings, Janofsky & Walker and Stephen L. Berry for California Restaurant Association and California Hotel & Lodging Association as Amici Curiae on behalf of Defendant and Respondent.

Opinion:
Opinion
CROSKEY, J.
Tip pooling, a practice by which tips left by patrons at restaurants and other establishments are shared among employees, is a common practice throughout California and the nation. No California statutes expressly address the practice. In this case, restaurant servers challenge the legality of a mandatory tip-pooling arrangement, whereby, as a condition of their employment, the servers must share tips with certain other employees at the restaurant. While the servers do not contest the requirement that bussers share in the tip pool, they challenge the inclusion of employees who do not provide "direct table service." The trial court sustained the demurrer of the restaurant without leave to amend, on the basis that employees who do not provide direct table service may, nonetheless, participate in mandatory tip pools. We agree and, therefore, affirm.
FACTUAL AND PROCEDURAL BACKGROUND
Defendant Reins International California, Inc. (Reins), operates several restaurants in California. Brad Etheridge and Hannah L. Hannah are, or were, employed by Reins as servers; they brought their complaint on behalf of the class of all persons who are, or have been, employed as servers by Reins within the four years immediately prior to the filing of their complaint. The complaint alleged that Reins has a mandatory tip-pooling policy by which its servers are required to "tip out" certain categories of Reins's employees who do not provide direct table service. Specifically, it is alleged that servers are required to pay a share of their tips to the kitchen staff, bartender, and dishwashers.
Believing that requiring them to share tips with employees who do not provide direct table service violates the Labor Code, Etheridge brought suit. The operative complaint is his second amended complaint. He alleges three causes of action for unlawful and unfair business practices (Bus. & Prof. Code, § 17200), based on the allegedly unlawful and unfair tip-pooling practices described above. The fourth cause of action sought civil penalties under Labor Code sections 2698 and 2699, for violations of the Labor Code. Each cause of action was based on Labor Code section 351, governing gratuities, and Etheridge's interpretation of that statute as prohibiting mandatory tip pooling benefitting employees who do not deliver direct table service to patrons.
Reins demurred, arguing that Labor Code section 351 does not limit tip-pooling participation to employees who provide direct table service. Reins argued that as long as tips were not shared with management (which Etheridge did not allege), the tip pool was permissible.
On August 9, 2007, the trial court sustained the demurrer without leave to amend. The court's order stated, "the entire action is dismissed with prejudice." On October 5, 2007, Etheridge filed a notice of appeal. Etheridge ultimately filed two notices of appeal in this case. After the first notice of appeal was filed, this court indicated that the appeal was in default for failure to pay the filing fee. In the apparent belief that the first notice of appeal was premature in the absence of a judgment, he chose not to pursue the first appeal, which was dismissed by this court on November 7, 2007. Instead, Etheridge returned to the trial court and obtained a judgment. Judgment was entered on December 27, 2007; notice of entry was served on January 8, 2008. On January 10, 2008, Etheridge filed his second notice of appeal, specifically indicating that he was appealing from the December 27, 2007 judgment.
Reins filed a motion to dismiss the second appeal, on the basis that a second appeal could not be taken from the same appealable order. We denied the motion without prejudice to its renewal based on, among other things, copies of the relevant documents from the trial court record. Reins did not renew its motion; instead, Reins included the relevant documents in a respondent's appendix and briefly addressed the issue in its respondent's brief.
Oral argument was heard on August 13, 2008. After argument, the court invited amicus curiae briefing on the issue of the legality of a mandatory tip pool requiring tips to be shared with employees who do not provide direct table service. The California Employment Lawyers Association filed an amicus curiae brief on behalf of Etheridge. The California Restaurant Association and the California Hotel & Lodging Association filed a joint brief as amici curiae on behalf of Reins. The parties were permitted to file responsive briefs to the briefs of the amici curiae.
ISSUES ON APPEAL
There are two issues presented by this appeal: (1) whether Etheridge is barred from proceeding on the second notice of appeal by the dismissal of the first appeal; and (2) whether a mandatory tip pool, whereby restaurant tips are shared with employees.who do not provide direct table service, is violative of Labor Code section 351.
DISCUSSION
1. The Appeal May Proceed
The August 9, 2007 order sustaining the demurrer states that "the entire action is dismissed with prejudice." It is signed by the trial court. "All dismissals ordered by the court shall be in the form of a written order signed by the court and filed in the action and those orders when so filed shall constitute judgments and be effective for all purposes . . . ." (Code Civ. Proc., § 58Id.) As a judgment, a dismissal is appealable. (Code Civ. Proc., § 904.1, subd. (a)(1).) Etheridge's first notice of appeal, taken from the August 9, 2007 dismissal order, was therefore properly taken from a judgment. His belief that the appeal had been prematurely taken from a nonappealable order was mistaken; he should have pursued the appeal, rather than allow it to be dismissed for failure to submit the filing fee.
Etheridge's second notice of appeal was filed on January 10, 2008, after he had obtained a document entitled "Judgment." There is no question that if we construe this notice of appeal as being taken from the earlier filed dismissal, the appeal is timely. The only question is whether the dismissal of the first appeal, for failure to pay the filing fee, bars Etheridge from pursuing a second appeal of the same dismissal. It does not.
Guidance is supplied by our Supreme Court's decision in Swortfiguer v. White et al. (1901) 6 Cal.Unrep. 779 [66 P. 81]. In that case, the plaintiff filed a notice of appeal from a superior court judgment. While that appeal was pending, the trial court attempted to modify its judgment; the plaintiff then filed a notice of appeal from the modified judgment, and attempted to pursue the second (but apparently not the first) appeal. As the purported modification to the judgment was made without jurisdiction, the modified judgment was void. The court therefore dismissed the second appeal on defendant's motion. The plaintiff was ultimately permitted to pursue her appeal with the first notice of appeal and the record she had filed in the second appeal. Defendant's argument against this was considered "too technical to prevail against the consideration that the plaintiff, having a valid appeal and a printed transcript of the record on file, ought not to be deprived of a hearing by the harmless mistake she made in seeking to prosecute the second appeal." (ibid.) Similar considerations apply here. Etheridge filed two notices of appeal, as did the plaintiff in Swortfiguer, and mistakenly chose to proceed on the notice that was invalid. He should not be deprived of the right to appeal by the harmless mistake he made in seeking to prosecute the second, instead of the first, appeal. Were it necessary, this court would issue an order, nunc pro tunc, vacating the dismissal of the first appeal, in order to enable him to proceed to a resolution on the merits.
2. Tip Pool Participants Are Not Limited to Employees Who Provide Direct Table Service
a. Standard of Review
"In reviewing the sufficiency of a complaint against a general demurrer, we are guided by long-settled rules. 'We treat the demurrer as admitting all material facts properly pleaded, but not contentions, deductions or conclusions of fact or law. [Citation.] We also consider matters which may be judicially noticed.' [Citation.] Further, we give the complaint a reasonable interpretation, reading it as a whole and its parts in their context. [Citation.] When a demurrer is sustained, we determine whether the complaint states facts sufficient to constitute a cause of action. [Citation.] And when it is sustained without leave to amend, we decide whether there is a reasonable possibility that the defect can be cured by amendment: if it can be, the trial court has abused its discretion and we reverse; if not, there has been no abuse of discretion and we affirm. [Citations.] The burden of proving such reasonable possibility is squarely on the plaintiff." (Blank v. Kirwan (1985) 39 Cal.3d 311, 318 [216 Cal.Rptr. 718, 703 P.2d 58].)
b. The Practice of Tipping
The practice of "tipping the providers of personal service has endured and is now a well-accepted part of our day-to-day lives." (Searle v. Wyndham Internat., Inc. (2002) 102 Cal.App.4th 1327, 1331 [126 Cal.Rptr.2d 231].) While a tip is "entirely gratuitous, entirely subjective and very personal" (ibid.), anecdotal evidence suggests that people tend to tip because they believe that they " 'don't get very good service if [they] don't add a tip.' " (Id. at p. 1336.)
Before discussing the legislative history of the relevant statute, a brief explanation of two practices related to tipping is helpful. The first is a practice known as a "tip credit," by which an employer credits a certain amount of the tips received by an employee against the employee's wages. In other words, when using a tip credit, the employer pays the employee less than minimum wage, with the understanding that the employee's tips will make up the difference. As will be discussed at length, tip credits against minimum wage are permissible under the federal Fair Labor Standards Act of 1938 (29 U.S.C. § 203(m)); tip credits against minimum wage were once permitted under California law, but were subsequently prohibited by statute (Henning v. Industrial Welfare Com. (1988) 46 Cal.3d 1262, 1270-1275 [252 Cal.Rptr. 278, 762 P.2d 442]).
The second practice, the one specifically at issue in this case, is mandatory tip pooling. In tip pooling, some of the tips received by tipped employees are shared with other employees at the business. This case raises the issue of precisely which other employees may participate in a tip pool. In one type of tip pool, the pool is designed to spread the risk of low-tipping patrons among all tipped employees; thus, only tipped employees may participate in tip pools. In another type of tip pool, the pools are designed to share tips with nontipped employees who are considered deserving of tips, but who, for some reason (perhaps tradition, or location) are generally not tipped by patrons.
The practices of tip crediting and tip pooling are not unrelated. One can conceive of a situation in which a tip-crediting employer (1) requires tipped employees to submit to the tip pool all tips received in excess of the amount necessary to guarantee that the employee receives the equivalent of minimum wage; and (2) uses the tip pool and the tip credit to avoid paying all of its nontipped employees minimum wage as well. Indeed, California's Industrial Welfare Commission (IWC) discovered, " 'during the time that tip credit was allowed[,] . tip sharing was required to such an extent that the traditional tipped employees were subsidizing the minimum wages of other classifications.' " (Industrial Welfare Com. v. Superior Court (1980) 27 Cal.3d 690, 729 [166 Cal.Rptr. 331, 613 P.2d 579].) This appears to be one of the reasons why tip crediting was ultimately prohibited in California. (Id. at pp. 729-730.)
Even though an employer can no longer use tip sharing to subsidize minimum wages of nontipped employees, it is possible that an employer could use tip sharing to subsidize market wages of nontipped employees, resulting in the same evil. Thus, when considering tip pooling, it is important to make certain that the employer is not using the tip pool as a de facto tip credit against market wages.
c. The History of Tip Crediting and Tip Pooling in California
The history of tip crediting and tip pooling in California was set out at length in Henning v. Industrial Welfare Com., supra, 46 Cal.3d at pages 1270-1275. The history began in 1917, with a statute providing that an employer who required an employee to pay the employer any portion of the tips received by the employee was guilty of a misdemeanor. (Id. at p. 1270.) In 1918, the California Supreme Court struck down that statute as violative of substantive due process and freedom of contract. (Id. at pp. 1270-1271, citing In re Farb (1918) 178 Cal. 592 [174 P. 320].) In the course of its opinion, the Supreme Court had noted that if there were any fraud on the public regarding the disposition of tips, it could be easily overcome by legislation requiring the employer to post a notice explaining the terms under which the employer was to receive the benefit of the gratuities paid. (Henning, at pp. 1270-1271.)
In an apparent response to this ruling, the Legislature enacted a statute in 1929 which provided that if the employer took any of the tips from its employees, or credited tips against the employee's wages, the employer was required to post a notice explaining the disposition of the tips, and the extent to which the employer was taking a tip credit against the wages due the employees. (Henning v. Industrial Welfare Com., supra, 46 Cal.3d at p. 1271.) The statute specifically expressed that its purpose was to prevent a fraud upon the public in connection with the practice of tipping. (Ibid.)
Eventually, this statutory requirement was codified in the Labor Code. Labor Code section 351, enacted in 1937, provided that an employer taking a portion of its employees' tips or crediting them against wages was required to post a notice regarding the disposition of tips. Labor Code section 356 expressed that the purpose of the article was to prevent fraud on the public in connection with the practice of tipping. (Henning v. Industrial Welfare Com., supra, 46 Cal.3d at p. 1272.)
In 1968, the IWC adopted a wage order establishing a tip credit system, allowing tips to be credited against minimum wage to a certain extent (at the time, 20 cents per hour). (Henning v. Industrial Welfare Com., supra, 46 Cal.3d at pp. 1272-1273.) Beginning in 1972, efforts began in the Assembly to eliminate the tip credit system. Bills were introduced to eliminate the "notice" language written in Labor Code section 351, and replace it with language providing that every gratuity is declared to be the sole property of the employee to whom it was paid or given. While the bills were not initially successful, their legislative history indicated that the effect of the proposed language would have been to eliminate the IWC's wage order permitting a tip credit against minimum wage. (46 Cal.3d at pp. 1273-1275.)
Ultimately, in 1975, the attempts to amend Labor Code section 351 to eliminate the tip credit were successful. A memorandum by the Assembly Committee on Industrial Relations on the successful legislation indicated that the basis of the bill " 'would appear to be that tips or gratuities are given for individual excellence of service above and beyond the basic duties of the employment, and as such, the employer has no vested right to consider tips a part of wages.' " (Henning v. Industrial Welfare Com., supra, 46 Cal.3d at p. 1275, quoting Assem. Com. on Labor Relations, mem. on Assem. Bill No. 232 (1975-1976 Reg. Sess.) p. 1.)
Labor Code section 351 was amended to provide, "No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or 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. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for." (Italics added.) Labor Code section 356, which provided that the purpose of the article was to prevent fraud on the public in connection with the practice of tipping, remained untouched.
With a minor exception, the language of Labor Code sections 351 and 356 in 1975 is the current language of these provisions. In 1988, the Supreme Court was required to determine whether the current language of Labor Code section 351 permitted the IWC to adopt a two-tier minimum wage, with a lower wage for employees who customarily receive tips. The court concluded that the two-tier minimum wage was prohibited by Labor Code section 351. (Henning v. Industrial Welfare Com., supra, 46 Cal.3d at p. 1265.) The employers had argued that a two-tier minimum wage did not create a fraud on the public, and Labor Code section 356 indicated that preventing fraud on the public was the purpose of Labor Code section 351. The court acknowledged the language of Labor Code section 356, but reasoned that "the prevention of fraud cannot be deemed the sole purpose of [Labor Code] section 351 in its current form." (46 Cal.3d at p. 1280, original italics.) Instead, the court focused on the legislative intent of the 1975 amendment to Labor Code section 351. Considering the legislative history, the court concluded that the legislative intent of the current version of the statute is as follows: "the Legislature has declared that tips belong to the employee and the IWC may not permit an employer to obtain the benefit of such tips by paying a tipped employee a wage lower than he would be obligated to pay if the employee did not receive tips. More narrowly, it has declared that the IWC may not permit an employer to use a 'tip credit' to pay a tipped employee a wage lower than the minimum wage he would be obligated to pay if the employee did not receive tips." (46 Cal.3d at p. 1278.)
d. Tip Pooling Is Not Prohibited by Labor Code Section 351
With Labor Code section 351 providing that "[ejvery . . . gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for," it was only a matter of time before an employee would challenge the process of tip pooling under the statute. After all, if a gratuity truly is the sole property of the employee to whom it is paid, the employee arguably should not be required to pool a portion of that gratuity with other employees. That challenge arose in Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062 [268 Cal.Rptr. 647] (Leighton).
Leighton concerned a restaurant server who had been required to share tips with bussers and bartenders at the restaurant. Under the restaurant's policy, servers were required to give 15 percent of their tips to bussers and 5 percent of their tips to the bartender. (Leighton, supra, 219 Cal.App.3d at p. 1066.) The plaintiff participated in the tip pool for several years, but eventually chose not to tip the bussers because she believed they had not been helpful. Her employment was terminated, and she brought a cause of action for wrongful discharge. Additionally, the plaintiff asserted a separate cause of action for repayment of moneys she had paid the bussers and bartenders. Summary judgment was granted in favor of the employer, and the plaintiff appealed.
On appeal, Division Seven of the Second Appellate District court concluded that the summary judgment could be affirmed if, as a matter of law, tip pooling was not prohibited by Labor Code section 351. (Leighton, supra, 219 Cal.App.3d at p. 1067.) Over a dissent, the court concluded that tip pooling was not so prohibited. First, the court looked to the language of Labor Code section 351, and found significant the fact that the law was silent as to tip pooling; presumably, if the Legislature had intended to prohibit or regulate tip pooling, it easily could have done so. (219 Cal.App.3d at p. 1067.) Second, the court found nothing in the legislative history of Labor Code section 351 which precluded tip pooling. Third, the court could find "no established policy" in California against tip pooling, and, in fact, recognized that "the restaurant business has long accommodated this practice which, through custom and usage, has become an industry policy or standard . . . ." (219 Cal.App.3d at p. 1067.)
The Leighton court then addressed the plaintiff's argument that a mandatory tip pool violates Labor Code former section 351's prohibition on an employer "tak[ing] any gratuity or a part thereof, paid, given to or left for an employee by a patron." The plaintiff argued that, by reassigning a portion of the tip proceeds to the bussers, the restaurant was exercising dominion over that portion of her tips. (Leighton, supra, 219 Cal.App.3d at pp. 1068-1069.) The Leighton court disagreed, again citing three reasons. The first two of the court's reasons disagreed with the plaintiff's underlying premise that the gratuities in question belonged to the server in the first place. First, the court addressed the plaintiff's argument that the tips belonged to her because the restaurant had failed to establish that the intent of the patrons, in leaving tips, was to give a gratuity to anyone other than the server. The court disagreed, relying not on evidence of patron intent but on its own understanding of the statutory language and the practical inability to determine any patron's intent. The court stated, "We dare say that the average diner has little or no idea and does not really care who benefits from the gratuity he leaves, as long as the employer does not pocket it, because he rewards for good service no matter which one of the employees directly servicing the table renders it. This, and the near impossibility of being able to determine the intent of departed diners in leaving a tip, in our view, account for the Legislature's use of the term 'employees' in declaring that '[e]very such gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.' ([Lab. Code,] § 351, italics added.) It is clear that the Legislature intended by this section to cover just such a situation." (219 Cal.App.3d at p. 1069, fn. omitted.) The court went on to state its belief that, as a practical matter, diners do not consciously determine exactly which persons servicing their table are responsible for an increased or decreased tip, and instead tip based on the entire experience. The court stated that prompt and efficient service from the busser can result in a generous tip even if the server was less than satisfactory, while inattentive and slow service from the busser can result in a smaller tip even if the server was efficient. (Id. at pp. 1069-1070.)
The Leighton court's second reason for rejecting the plaintiff's argument that a tip pool is an improper "taking" of the server's tip was, again, a rejection of the server's unspoken premise that the gratuity left is the server's sole property. The Leighton court recognized that when multiple employees— such as a server and a busser—provide service to a patron, a gratuity left on the table is left for those employees, not the first employee to pick it up. It is neither the server's sole property nor the busser's sole property. Thus, a tip pool which equitably distributes the tip does not constitute a taking of the property of either employee. (Leighton, supra, 219 Cal.App.3d at p. 1070.)
Finally, the court identified policy reasons for concluding that tip pooling does not violate Labor Code section 351. The court stated that "an employer-mandated tip pooling policy is one of common sense and fairness, and protects the public, the employees and the restaurant employer. The public leaves a tip for those employees who actually service the table, and has a right to expect that those employees receive the gratuity to the exclusion of the employer." (Leighton, supra, 219 Cal.App.3d at p. 1070.) The court emphasized that the mandatory tip-pooling process protected employees, so that the share of tips received by each employee would be fairly determined in advance by the employer, and would not be subject to the whim of the employee who first picks up the tip. The court concluded that a tip pool encourages all employees to give the best possible service, which ultimately benefits the employer and all employees. (Id. at p. 1071.)
In sum, the Leighton court held that mandatory tip pools among employees are not violative of Labor Code section 351. Therefore, the plaintiff could not prevail on her cause of action for wrongful termination.
e. Employees Who Participate in the Chain of Service May Participate in Tip Pools
Leighton is the first California opinion regarding the legality of mandatory tip pools, and is the foundation from which all other cases begin their analysis. As the plaintiff in Leighton had been terminated for refusing to share tips with the bussers, the main thrust of the analysis in Leighton was whether bussers could share in tip pools. Some of the language used in Leighton appeared to find it significant that bussers provide "direct table service." (E.g., Leighton, supra, 219 Cal.App.3d at pp. 1067 [standard industry practice is to distribute tips among employees "who directly provide table service to a patron"], 1069 [assumes patrons intend to reward good service "no matter which one of the employees directly servicing the table" renders it], 1070 [gratuities left on a table are left for all employees who "directly serve the table"].)
Based on this "direct table service" language in Leighton, Etheridge argues that the tip pool in the instant case is illegal because he is forced to share his tips with kitchen staff, dishwashers, and bartenders, none of whom provide direct table service to patrons. This is too narrow a reading of Leighton. First and foremost, the Leighton facts involved a tip pool shared with bartenders, not just bussers, and the Leighton plaintiff alleged a cause of action for a refund of the moneys paid the bartenders as well as the bussers. When actually addressing the issue of bartenders, the Leighton majority backed off from the "direct table service" language, and instead stated that gratuities belong "to the employee[s] who contributed to the service of that patron." (Leighton, supra, 219 Cal.App.3d at p. 1072, fn. 6.) The court stressed that it was concerned with protecting the property rights of all employees, including bartenders, who "render service to the same patron." (Ibid.) Thus, it is apparent that although the court used "direct table service" language when discussing bussers, the court's holding included bartenders and its rationale for that holding extended to all employees who contribute to the service of the patron.
Second, any attempt to limit the Leighton court's reasoning to apply only to employees who provide direct table service is unpersuasive. Indeed, it is questionable whether the Leighton court's result of allowing bussers to participate in the tip pool would be consistent with a direct table service requirement. While, in some restaurants, the duties of bussers include filling water glasses, bringing rolls and butter, clearing the table between courses and pouring coffee (Leighton, supra, 219 Cal.App.3d at pp. 1069-1070), it is certainly not always the case that patrons receive direct service from bussers. At some restaurants, servers handle the coffee; at many restaurants, water conservation is practiced and water is not delivered unless requested; at some meals, there are no rolls and butter; in some circumstances, all of the food is served at once, and the busser does not clear the table until after the patron departs. But a "direct table service" limitation would allow a busser to participate in a tip pool if the busser clears the plates while the patron is still seated at the table, but not to participate if the busser waits until after the patron has departed. The work is the same; the next patron still starts his dining experience with an equally clean table, but the busser who cleans between patrons would be barred from participating in the tip pool because he does not personally interact with any patrons. This illogical result casts doubt on any "direct table service" requirement.
Moreover, the factors on which the Leighton court relied to conclude that tip pooling was not a taking of the server's personal property apply at least as strongly when considered with respect to employees who contribute to a patron's service, rather than only those employees who provide direct table service. First, the Leighton court stated, "We dare say that the average diner has little or no idea and does not really care who benefits from the gratuity he leaves, as long as the employer does not pocket it, because he rewards for good service no matter which one of the employees directly servicing the table renders it." (Leighton, supra, 219 Cal.App.3d at p. 1069.) The same holds true with respect to all employees who contribute to a patron's service. If the plates on which the food is served are not clean, the food received is not hot, or is not as ordered, the patron may be inclined to leave a smaller tip even when the services of the servers and bussers were satisfactory. Likewise, when the meal is delicious, the presentation on the plates beautiful, and special food requests have been satisfied, the patron may be inclined to leave a generous tip, even when the servers and bussers might not have delivered exceptional service. In short, a patron tips on all of the service received, not simply the service received by employees the patron can see. Second, the Leighton court noted that when a tip is left on the table, it becomes the property of all employees who directly serviced the table; again, the rationale applies equally to employees who participate in the service of that table. Finally, the Leighton court concluded that a mandatory tip pool is supported by "common sense and fairness, and protects the public, the employees and the restaurant employer." (Id. at p. 1070.) These policy reasons extend to mandatory tip pools which include employees who do not provide direct table service, but participate in the chain of service. Dishwashers and other kitchen staff are encouraged to give their best possible service as they know they will participate in the financial rewards if the customers are pleased with their work, even though the customers do not personally see them doing it. And a mandatory tip pool makes certain that these employees receive their fair share when the patrons are pleased with their service, but have no way to tip them directly.
In short, both the holding in Leighton and the Leighton rationale mandate the conclusion that tip pooling is not illegal when the participants in the tip pool contribute to the patron's service, even if not providing direct table service. Recently, a federal court faced with the same issue interpreted Leighton in precisely the same manner. (Louie v. McCormick & Schmick Restaurant Corp. (CJD.Cal. 2006) 460 F.Supp.2d 1153, 1158-1160.)
f. The Fair Labor Standards Act Provides No Guidance
In the reply brief on appeal, Etheridge suggested that the tip-pooling restrictions of the federal Fair Labor Standards Act (FLSA) could be helpful in interpreting the restrictions imposed by Labor Code section 351. When seeking amicus curiae briefing, we invited the amici curiae and the parties to "consider the effect, if any" of the FLSA. We now conclude the FLSA provides no guidance in this case.
The main reason for this conclusion is that the requirements of the FLSA are wholly distinguishable from the requirements of Labor Code section 351. Most importantly, unlike California law, the FLSA permits tip crediting. (29 U.S.C. § 203(m).) However, the FLSA permits tip crediting only if, among other restrictions, "all tips received by such employee have been retained by the employee, except that this subsection shall not be construed to prohibit the pooling of tips among employees who customarily and regularly receive tips." (29 U.S.C. § 203(m)(2).) The FLSA has no other mention of tip pooling, and apparently has no restriction on tip pooling when the employer is not taking a tip credit.
In other words, Labor Code section 351 permits tip pooling except when the tip pooling operates as a tip credit, while the FLSA permits tip pooling, but restricts it when the employer is taking a tip credit. The FLSA's restrictions on tip pooling have the purpose of rendering a tip credit permissible. As the purpose behind the tip-pooling restriction in the FLSA is incompatible with California's prohibition on tip crediting, the FLSA can provide no guidance in this case.
DISPOSITION
The judgment is affirmed. The parties are to bear their own costs on appeal.
Kitching, J., concurred.
The factual recitation is based upon the allegations of the complaint which, for purposes of this appeal, are assumed to be true.
Etheridge and Hannah filed the original complaint as the plaintiffs. The record reflects, however, that only Etheridge filed a notice of appeal from the trial court's judgment of dismissal (although his brief on appeal purports to be on behalf of both of them). As a result, Etheridge is the only plaintiff and appellant in this appeal and, for purposes of convenience and clarity, we hereafter refer to him as such.
A demurrer was sustained to the initial complaint on the basis that Etheridge could not pursue a private action for violation of the Labor Code. The demurrer to his first amended complaint was not heard; he was granted leave to file the second amended complaint.
Each cause of action pertained to a different group of employees sharing in the tip pool—kitchen staff, bartenders, and dishwashers.
These provisions "permitQ aggrieved employees to recover Labor Code penalties that previously could be pursued only by the Labor Commissioner." (Amaral v. Cintas Corp. No. 2 (2008) 163 Cal.App.4th 1157, 1173 [78 Cal.Rptr.3d 572].)
There is no private right of action for the violation of Labor Code section 351; such violations are actionable as unlawful business practices and may serve as the basis for an action for civil penalties under Labor Code section 2698 et seq. (Lu v. Hawaiian Gardens Casino, Inc. (2009) 170 Cal.App.4th 466, 473-477 [88 Cal.Rptr.3d 345].) Division Two of the First Appellate District recently disagreed with this conclusion, holding that there is a private right of action under Labor Code section 351. (Grodensky v. Artichoke Joe's Casino (2009) 171 Cal.App.4th 1399, 1422-1427 [91 Cal.Rptr.3d 732].)
"[I]t is and has been the law of this state that notices of appeal are to be liberally construed so as to protect the right of appeal if it is reasonably clear what appellant was trying to appeal from, and where the respondent could not possibly have been misled or prejudiced." (Luz v. Lopes (1960) 55 Cal.2d 54, 59 [10 Cal.Rptr. 161, 358 P.2d 289]; see Cal. Rules of Court, rule 8.100(a)(2).) There can be no doubt that, at all times, Etheridge sought to appeal the dismissal of the complaint due to the ruling on defendants' demurrer; he simply erred in identifying the order or judgment from which the appeal could properly be taken.
No notice of entry was served with respect to the order of dismissal. Etheridge therefore had 180 days from the date of the entry of the dismissal to file his notice of appeal. (Cal. Rules of Court, rule 8.104(a).)
This case is not concerned with any purely voluntary tip-pooling arrangement. "Tip pooling," when used in this case, refers to a mandatory tip-pooling arrangement imposed by an employer on the employees.
At one point, the Legislature had passed a version which declared tips to be the employees' property, but added language which allowed tip crediting pursuant to valid regulation and with posted notice. (Henning v. Industrial Welfare Com., supra, 46 Cal.3d at p. 1274.)
Labor Code section 351 was amended in 2000 to add a provision preventing employers from passing on to employees a share of credit card processing fees for gratuities paid by credit card. (Stats. 2000, ch. 876, § 9.)
Similarly, the Supreme Court had previously stated, with respect to the same statute, "The Legislature could rationally determine (1) that, for minimum wage purposes, employers should not receive the benefits of gratuities that customers intend for the sole benefit of employees and (2) that employers should not be excused from the obligation of paying minimum wages to certain employees upon the uncertain possibility that such employees will in fact receive a predetermined amount of tips for their services." (Industrial Welfare Com. v. Superior Court, supra, 27 Cal.Sd at pp. 730-731.)
The plaintiff was initially suspended for refusing to share her tips with the bussers. When she returned to work, management asked if she would comply with the tip-pooling requirements. When the plaintiff "indicated she might if the [bussers] did their job, she was fired." (Leighton, supra, 219 Cal.App.3d at p. 1066.)
Neither Etheridge nor amicus curiae California Employment Lawyers Association suggests that Leighton was wrongly decided and that tip pools are never permissible in California. Leighton was decided in 1990, and Labor Code section 351 was amended by the Legislature in 2000, but no change was made to the language in Labor Code section 351 which had been interpreted by the Leighton opinion. " '[Wjhen, as here, the Legislature undertakes to amend a statute which has been the subject of judicial construction' 'it is presumed that the Legislature was fully cognizant of such construction .' [Citations.]" (People v. Garcia (2006) 39 Cal.4th 1070, 1087-1088 [48 Cal.Rptr.3d 75, 141 P.3d 197].)
The Leighton dissent disagreed, suggesting that admissible survey evidence of patron intent could surely be obtained, and arguing that it was the defendant's burden to present such evidence to justify its tip pool. (Leighton, supra, 219 Cal.App.3d at pp. 1082-1083 (dis. opn. of Johnson, J.).) Amicus curiae California Employment Lawyers Association takes this position in its brief. The Leighton majority has already rejected this argument.
This division recently reached the same conclusion in the factual context of casino card dealers. (See Lu v. Hawaiian Gardens Casino, Inc., supra, 170 Cal.App.4th 466.)
Division Eight of the Second Appellate District recently issued an opinion concluding that Leighton does not limit tip pool participants to employees providing direct table service, and instead allows all employees who provide "indirect" table service to participate as well. (Budrow v. Dave & Buster's of California, Inc. (2009) 171 Cal.App.4th 875 [90 Cal.Rptr.3d 239].) This conclusion does not appear to be significantly different from the "chain of service" standard adopted in this opinion.
Jameson v. Five Feet Restaurant, Inc. (2003) 107 Cal.App.4th 138, 141 [131 Cal.Rptr.2d 771], concluded that a tip pool benefitting "floor managers" was illegal because floor managers had sufficient supervisory duties to be considered the employer's agents rather than employees. There is no issue in the instant case about management participation in the tip pool.
The Leighton court stated, "Primarily the dissent is based upon the premise that the gratuity left by a patron, unless he specifies otherwise, belongs to the [server] alone to the exclusion of the [busser] and bartender. We have held that the gratuity, unless otherwise specified by the patron, belongs to the employee[s] who contributed to the service of that patron." (Leighton, supra, 219 Cal.App.3d at p. 1072, fn. 6.)
Division Two of the First Appellate District recently issued an opinion which concluded that tip pool participants may include any employee, not an agent of the employer, who contributed to a customer's pleasant experience, regardless of whether the customer intended that employee to share in the tip. (Grodensky v. Artichoke Joe's Casino, supra, 171 Cal.App.4th at pp. 1443-1447.)
In Etheridge's brief in response to the amici curiae brief filed by the California Restaurant Association, et al., Etheridge argues that another federal case, Matoff v. Brinker Restaurant Corp. (C.D.Cal 2006) 439 F.Supp.2d 1035, "interpreted Leighton as establishing a 'direct table service' requirement for mandatory tip pools." This is an overstatement of the Matoff opinion. That court was concerned with whether a plaintiff who alleged a mandatory tip pool requiring servers to share tips with bartenders stated a cause of action. The court stated, "While mandatory tip pooling has been found not to violate section 351 when the participants in the pool directly serve customers, see [Leighton], Plaintiff has alleged that servers in Defendant's restaurants were required to share tips with bartenders who did not provide such direct service. Because the tip pool is mandatory, if it is unlawful, it may constitute an employer's unlawful taking of employee's tips within the meaning of section 351." (Matoff v. Brinker Restaurant Corp., supra, 439 F.Supp.2d at p. 1038.) In other words, the Matoff opinion noted that Leighton upheld a tip pool when the participants provided direct table service, and considered it an open question ("if it is unlawful") whether a tip pool with participants who did not provide direct table service would be permissible. When the Matoff court eventually reached that question in an unpublished opinion, it concluded that such a tip pool was proper, stating that a "direct service requirement" was a "distort[ion]" of the language of Leighton. (Matoff v. Brinker Restaurant Corp. (C.D.Cal., June 12, 2007, No. CV 06-2839 PSG) 2007 U.S.Dist. Lexis 82561, p. *11.)
Before the trial court, the parties also relied on two administrative interpretations of Leighton, issued by California's Department of Industrial Relations, Division of Labor Standards Enforcement. Ultimately, statutory interpretation is an issue for the courts. The court is to independently judge the text of the statute; the agency's interpretation is just one of several tools available to the court. (Yamaha Corp. of America v. State Bd. of Equalization (1998) 19 Cal.4th 1, 7-8 [78 Cal.Rptr.2d 1, 960 P.2d 1031].) In this case, there is no reason to defer to the agency on its case-specific attempts to apply Leighton.
The FLSA does not preempt California labor laws. (See Tidewater Marine Western, Inc. v. Bradshaw (1996) 14 Cal.4th 557, 567 [59 Cal.Rptr.2d 186, 927 P.2d 296]; Skyline Homes, Inc. v. Department of Industrial Relations (1985) 165 Cal.App.3d 239, 250-251 [211 Cal.Rptr. 792].)
In any event, interpretation of the FLSA requirement has been by no means uniform. Under the FLSA, when the employer takes a tip credit, tip pool participants are limited to those employees " 'who customarily and regularly receive tips.' " One court has held that only employees who interact with customers can participate in such a tip pool. (Hai Ming Lu v. Ting Fong Restaurant, Inc. (S.D.N.Y. 2007) 503 F.Supp.2d 706, 711.) Another court disagreed with the direct customer interaction requirement, noting that bussers may participate in tip pools even though they generally do not perform their duties until after the customers have completed their dining experience. (Lentz v. Spanky's Restaurant II, Inc. (N.D.Tex. 2007) 491 F.Supp.2d 663, 670-671.) One court noted that, under federal law, an employee "customarily and regularly receives tips" if that employee customarily receives tips from a tip pool. The court recognized the circularity in this conclusion, but was not troubled by it because the employer could only take a tip credit for those employees engaged in an occupation in which tips were customarily received—thereby implying a customer interaction requirement for tip crediting but not for receiving pooled tips from other employees for whom a tip credit is taken. (Kilgore v. Outback Steakhouse of Florida, Inc. (6th Cir. 1998) 160 F.3d 294, 300-301.)