Court Opinion

ID: 2763645
Source: CourtListenerOpinion
Date Created: 2014-12-22 21:03:11.321062+00
Date Added: 2024-06-11T10:44:48.519142
License: Public Domain

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                                                               Electronically Filed
                                                               Supreme Court
                                                               SCWC-11-0000594
                                                               22-DEC-2014
                                                               09:13 AM

           IN THE SUPREME COURT OF THE STATE OF HAWAI#I

                                 ---o0o---

                         JASON KAWAKAMI,
  individually and on behalf of all others similarly situated,
         Petitioner/Plaintiff-Appellant/Cross-Appellee,

                                    vs.

    KAHALA HOTEL INVESTORS, LLC, dba KAHALA HOTEL AND RESORT,
         Respondent/Defendant-Appellee/Cross-Appellant.

                             SCWC-11-0000594

         CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
             (CAAP-11-0000594; CIVIL. NO. 08-1-2496)

                            December 22, 2014

RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.

                OPINION OF THE COURT BY WILSON, J.

                            I.   Introduction

          In this case, we are once again confronted with alleged

violations of Hawaii’s hotel or restaurant service charge law,
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Hawai#i Revised Statutes (“HRS”) § 481B-14 (2008).1

Specifically, we consider the following issue: Under HRS § 481B-

14, does a hotel or restaurant’s use of service charges to pay

its employees’ “wages” without disclosing such practice to its

customers constitute an unfair or deceptive act or practice in

the conduct of trade or commerce (“UDAP”) and/or an unfair method

of competition (“UMOC”) pursuant to HRS § 480-2 (2008).             As

discussed below, we conclude in the affirmative.

          Jason Kawakami (“Kawakami”) held his wedding reception

at the Kahala Hotel and Resort (“Kahala Hotel”) in July 2007.

Kahala Hotel collected a 19% service charge on the purchase of

food and beverages for his reception.         Kahala Hotel did not

distribute the 19% service charge directly to its employees as

“tip income.”    Instead, 15% of the service charge was retained by

Kahala Hotel as a “management share,” then reclassified and used

to pay for the banquet employees’ “wages.”          No disclosure was

     1
          HRS § 481B-14 states:

          Any hotel or restaurant that applies a service charge for
          the sale of food or beverage services shall distribute the
          service charge directly to its employees as tip income or
          clearly disclose to the purchaser of the services that the
          service charge is being used to pay for costs or expenses
          other than wages and tips of employees.

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made to Kawakami that a portion of the service charge was used as

wages, rather than tip income.

          Kawakami, individually and on behalf of all other

similarly situated individuals (“Plaintiff Class”) filed a

lawsuit in the Circuit Court of the First Circuit (“circuit

court”) alleging that Kahala Hotel violated HRS § 481B-14 when it

failed to either distribute the service charges directly to its

employees as tip income or disclose to the Plaintiff Class that

the service charges were being used to pay for costs or expenses

other than “wages and tips” of employees.

          The circuit court2 held that pursuant to HRS § 481B-14,

the plaintiff customer is entitled to know that a portion of the

service charge would not be paid to employees as tip income, but

would, instead, become the property of Kahala Hotel to be used as

the hotel deemed appropriate.       Specifically, the circuit court

held: “That the hotel decides to use its 15 percent share of the

service charge to offset employees’ wages, does not alter,

reduce, negate, or discharge the Defendant’s disclosure

obligations under HRS section 481 B-14.”

     2
          The Honorable Gary W.B. Chang presided.

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          The Intermediate Court of Appeals (“ICA”) disagreed.

In its March 25, 2014 Memorandum Opinion, the ICA held that

because the hotel had reclassified its 15% management share to

pay its banquet employees’ wages, Kahala Hotel was in compliance

with HRS § 481B-14 pursuant to this court’s interpretation of

“tip income” in Villon v. Marriott Hotel Services, Inc., 130

Hawai#i 130, 306 P.3d 175 (2013).        The ICA thus concluded that no

disclosure was required.

          On certiorari, Kawakami challenges the ICA’s conclusion

that HRS § 481B-14 does not mandate disclosure of service fees

used for wages.3

          We hold that pursuant to HRS § 481B-14, a hotel or

restaurant that applies a service charge for food or beverage

services must either distribute the service charge directly as

tip income to the non-management employees who provided the food

     3
          Kawakami presented the following question on certiorari:

          Whether the ICA gravely erred when it held that a hotel that
          fails to: (1) distribute 100% of the service charge
          collected directly to its employees as tip income, and (2)
          fails to disclose to customers that it is retaining portions
          of the service charge is nevertheless complying with HRS
          § 481B-14 if the hotel is "reclassifying" this money and
          making an accounting adjustment crediting the retained
          service charge against its preexisting wage and salary
          obligations.

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or beverage services, or disclose to its customers that the

service charges are not being distributed as tip income.

                              II.   Background

            Kahala Hotel generally levies a 19% or 20% service

charge for banquet events at the hotel in connection with the

purchase of food or beverages.        The service charges are placed in

one fund.    Pursuant to a Collective Bargaining Agreement (“CBA”)

between Kahala Hotel and Unite Here! Local 5, the union

representing Kahala Hotel employees, 85% of the service charges

are distributed to the employees as tip income.           The CBA then

permits the hotel to retain the other 15% as the “management’s

share.”   At the end of the month, this portion is reclassified to

offset Kahala Hotel’s wage obligations to its banquet employees.

Here, Kahala Hotel collected a 19% service charge from Kawakami

on the purchase of food and beverages for his wedding reception.

Kahala Hotel then retained 15% of the service charge as its

management share before reclassifying the charges to pay its

employees’ wages.

            On December 3, 2008, Kawakami filed a lawsuit

individually and on behalf of the Plaintiff Class,4 which

     4
            The circuit court certified the class on January 12, 2010.

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consisted of customers who paid a service charge to Kahala Hotel

in connection with the purchase of food or beverages.             In the

Complaint, Kawakami alleged that Kahala Hotel charged customers a

“service charge” that was calculated as a percentage of the total

cost of food and beverage, typically ranging between 15% and 23%.

Kawakami alleged that Kahala Hotel failed to clearly disclose to

Kawakami and its other customers that Kahala Hotel was not

distributing a portion of the service charge to its employees and

in fact, retained that portion for itself.

          In addition, Kawakami alleged that Kahala Hotel had a

policy and practice of retaining a portion of the service charges

and using this portion to pay managers and non-tipped employees

who did not serve or assist in serving food and beverages.

Kawakami alleged that such conduct was a direct violation of HRS

§ 481B-14 and thus, constituted a UDAP or UMOC pursuant to HRS §

480-2.

          Kahala Hotel asserted that Kawakami was not informed

that the service charge was being used to pay for costs and

expenses other than wages and tips of employees because the

service charge was in fact being used to pay for the wages and

tips of banquet employees through its reclassification system.

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A.    Trial Court Proceedings

            On August 19, 2009, Kawakami, on behalf of the

Plaintiff Class, filed a motion for summary judgment, arguing

that the failure to disclose the fact that part of the service

charge was not being distributed directly to its employees as tip

income was a violation of HRS § 481B-14, and thus, a per se UDAP

violation under HRS § 480-2.

            On September 13, 2010, Kahala Hotel also filed a motion

for summary judgment.       Kahala Hotel argued that because it

distributed all of the service charges it collected as employee

wages and tips, it was not required by statute to make any

disclosures to consumers; therefore, its practice did not violate

HRS § 481B-14.

            Because neither summary judgment motion sought a

complete adjudication of all claims and defenses, the court

construed both motions as motions for partial summary judgment,

specifically addressing the construction of HRS § 481B-14.                The

court then granted Kawakami’s motion for partial summary

judgment, agreeing with Kawakami’s interpretation of the statute.

The court reasoned that the CBA permitted the employer to treat

its 15% share of the service charge as its property, rather than

employee property.       Thus, employees received their specified 85%

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of the service charge as tip income; however, Kahala Hotel

reclassified the remaining 15% of the service charge as the

management share before distributing it as wages.            The court

concluded that Kahala Hotel’s entitlement to, or use of, the 15%

management share did not violate HRS § 481B-14; failure to

disclose such use did.

           The court held that based on the language of HRS §

481B-14 and its legislative history, the law required Kahala

Hotel to either distribute the service charge to its employees as

tip income, or make a disclosure of the purpose for which the

service charge was being used.       The court explained: “The point

is that 15 percent of the service charge is not being paid as tip

income to employees, and the law entitles the customer to be

informed of that fact.”      The court thus rejected Kahala Hotel’s

argument that disclosure was not required because Kahala Hotel

used its 15% of the service charge to pay wages.

           A jury trial was held to determine the issue of

damages.   At the close of Kawakami’s evidence, Kahala Hotel moved

for judgment as a matter of law (“JMOL”) on the basis that

Kawakami failed to provide any evidence regarding economic loss

or injury.   Kahala Hotel renewed its motion at the close of its

own evidence.    The circuit court denied both motions.

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            On December 17, 2010, the jury returned its verdict,

finding that Kahala Hotel’s failure to disclose that not all of

the service charges were directly distributed to its employees as

tip income was the legal cause of the injuries to the Plaintiff

Class.    The jury awarded the Plaintiff Class $269,114.73, which

represented the management share of the service charges.

Following the verdict, Kahala Hotel again moved for JMOL, which

the court denied.      On February 8, 2011, Kahala Hotel filed a

renewed motion for JMOL.        The circuit court granted this fourth

JMOL motion noting that the record failed to establish 1) that

plaintiffs suffered any injury, and 2) the amount of plaintiffs’

damages.    The court then issued its Final Judgment, which

effectively reversed the jury’s verdict, and entered judgment in

favor of Kahala Hotel.

B.    Appeal to the Intermediate Court of Appeals

            Both parties appealed to the ICA.          Kawakami challenged

the circuit court’s determination that, as a matter of law,

Kawakami and the Plaintiff Class were not entitled to damages.

Specifically, in his appeal, Kawakami contended that the circuit

court erred in granting Kahala Hotel’s fourth motion for JMOL;

Kawakami argued there was substantial evidence of injury to

support the jury’s damages award.          Kawakami also argued that the

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circuit court erred in allowing Kahala Hotel to introduce

evidence of how it distributed its service charges, claiming that

such evidence was not relevant to the calculation of damages.

As discussed further below, the ICA did not address the issues

raised in Kawakami’s appeal, and affirmed judgment in favor of

Kahala Hotel on other grounds.

            Kahala Hotel’s cross-appeal challenged the circuit

court’s summary judgment order entered in favor of Kawakami.

Kahala Hotel argued that the circuit court did not acknowledge

the plain language of the statute, and instead, relied on an

interpretation that renders void a material part of the statute.

Kahala Hotel contended that because it paid its 15% of the

service charge as “wages,” the payment was for “wages and tips”;

and, properly interpreted, HRS § 481B-14 permits Kahala Hotel’s

practice of using all of the collected service charges to pay

“wages and tips of employees” without any disclosure to the

customer.

            In its March 25, 2014 Memorandum Opinion, the ICA

agreed with Kahala Hotel’s position regarding the interpretation

of the statute, and accordingly, vacated the circuit court’s

entry of summary judgment, directed entry of summary judgment in

favor of Kahala Hotel, and affirmed the circuit court’s Final

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Judgment.5    Finding this determination dispositive, the ICA did

not address the issues raised by Kawakami in his appeal.

             The ICA held that pursuant to Villon, 130 Hawai#i at

135, 306 P.3d at 180, “tip income” and “wages and tips” are

synonymous within the meaning of HRS § 481B-14; and a contrary

conclusion risked an “absurd result - the impossibility of

compliance.”     Thus, the ICA held that although Kahala Hotel did

not distribute the service charge as “tip income,” it was

unnecessary to issue a disclosure to the customer because the

service charge was ultimately applied toward satisfying its wage

obligation to the employee.

             The ICA recognized its decision contravened the

legislature’s intent to inform customers when service charges

were not paid as tips; however it concluded: “Even if the

construction we apply today does, in some circumstance, cause

unintended consequences, we are obliged to leave it to the

legislature to resolve the matter.”

      5
            The ICA noted that “[b]ecause the Final Judgment is consistent
with our resolution of [Kahala Hotel’s] cross-appeal, the judgment is
affirmed.”

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                       III.    Standard of Review

           A motion for summary judgment is reviewed de novo,

under the same standard applied by the trial court.            Gurrobat v.

HTH Corp., 133 Hawai#i 1, 14, 323 P.3d 792, 805 (2014).

“‘Summary judgment is appropriate if the pleadings, depositions,

answers to interrogatories, and admissions on file, together with

the affidavits, if any, show that there is no genuine issue as to

any material fact and that the moving party is entitled to a

judgment as a matter of law.’”       Pac. Int’l Servs. Corp. v. Hurip,

76 Hawai#i 209, 213, 873 P.2d 88, 92 (1994) (quoting Kaapu v.

Aloha Tower Dev. Corp., 74 Haw. 365, 379, 846 P.2d 882, 888

(1993)).

                              IV.   Discussion

           On certiorari, Kawakami reiterates that HRS § 481B-14

requires Kahala Hotel to either pay all of the service charge to

its employees as tip income or, if it retains any portion, to

disclose its practice to its customers.          Kawakami contends that

the trial court properly found that Kahala Hotel violated HRS §

481B-14 when it did not disclose that 100% of the service charges

paid by the Plaintiff Class were not paid to the employees who

served them.   Kawakami argues that without any disclosure of this

practice, “Kahala Hotel misled customers into thinking that

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servers received the service charge in full as tip income.”              In

support, Kawakami cites this court’s decisions in Davis v. Four

Seasons Hotel Ltd., 122 Hawai#i 423, 228 P.3d 303 (2010), Villon,

Gurrobat, and HRS § 481B-14’s legislative history.

          In its Response, Kahala Hotel offers a differing

interpretation of Villon, arguing that under Villon, the two

clauses in HRS § 481B-14 are synonymous.          Under this view, “tip

income” is indistinguishable from “wages and tips.”            Kahala Hotel

argues that because 100% of the service charges were used to pay

for wages of employees, there was no need to make a disclosure

under the statute.     Kahala Hotel thus urges this court to

interpret the phrase “tip income” in the first clause of HRS §

481B-14 to include “wages.”

          Kahala Hotel’s interpretation of HRS § 481B-14

contravenes what is now recognized by this court as the well-

settled duty of hotels and restaurants to either distribute the

entirety of the service charge directly to non-management banquet

employees who served the consumers as “tip income,” or to

disclose its practice of withholding the service charge so that a

well-informed consumer may choose to leave a tip for the

employees as a reward for their service.

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A.    The Legislature Intended the Phrase “Wages and Tips” To Mean
      “Tip Income” Within the Meaning of HRS § 481B-14

            The purpose of HRS § 481B-14 is to require hotels and

restaurants that apply a service charge for food or beverage

services, but do not distribute the charge directly to employees

as tip income, to advise customers that the service charge will

be used to pay for costs or expenses other than wages and tips of

employees.6     2000 Haw. Sess. Laws Act 16, at 21–22.           This court

comprehensively expounded the legislative history of HRS § 481B-

14 in Villon.

            In Villon, we explained that when the bill went to its

second and last House referral, the House Finance Committee

drafted a Standing Committee Report indicating that the purpose

of the bill was to require disclosure from hotels or restaurants

applying service charges that were not being distributed to its

employees:

            [T]he purpose of the bill was to “prevent unfair and
            deceptive business practices by requiring hotels or
            restaurants that apply a service charge for the sale of food
            or beverage, to disclose to the purchaser that the service

      6
            Initially, the proposed bill that would become HRS § 481B-14 did
not address the need to inform the customers when the employee did not receive
a portion of the tip or service charge. H.B. 2123, entitled, “‘A BILL FOR AN
ACT RELATING TO WAGES AND TIPS OF EMPLOYEES,’ sought only to ‘protect
employees who receive or may receive tips or gratuities during the course of
their employment from having these amounts withheld or credited to their
employers.’” Villon, 130 Hawai#i at 137, 306 P.3d at 182 (quoting H.B. 2123,
20th Leg., Reg. Sess. (2000)).

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            charge is being used to pay for costs or expenses other than
            wages and tips of employees, if the employer does not
            distribute the service charge to its employees. ”

Villon, 130 Hawai#i at 138, 306 P.3d at 183 (emphasis added)

(quoting H. Stand. Comm. Rep. No. 854–00, in 2000 House Journal,

at 1298).    The House Finance Committee amended the bill by making

“‘technical, nonsubstantive amendments for purposes of clarity

and style’” by inserting the words “directly” and “as tip income”

to the first clause of the bill so as to read as follows: “‘Any

hotel or restaurant that applies a service charge for the sale of

food or beverage services shall distribute the service charge

directly to its employees as tip income . . . .’”            Id. at 138-39,

306 P.3d at 183-84 (quoting H.B. 2123, H.D. 2, 20th Leg., Reg.

Sess. (2000)).

            Similarly, the Senate Standing Committee Report

specifically explained that HRS § 481B-14’s purpose was to inform

customers if employees did not receive the intended service

charges:

            “The purpose of this measure is to enhance consumer
            protection with respect to service charges imposed by hotels
            and restaurants on the sale of food and beverages.

            ....

            Your Committee finds that it is generally understood that
            service charges applied to the sale of food and beverages by
            hotels and restaurants are levied in lieu of a voluntary
            gratuity, and are distributed to the employees providing the

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          service. Therefore, most consumers do not tip for services
          over and above the amounts they pay as a service charge.

          Your Committee further finds that, contrary to the above
          understanding, moneys collected as service charges are not
          always distributed to the employees as gratuities and are
          sometimes used to pay the employer’s administrative costs.
          Therefore, the employee does not receive the money intended
          as a gratuity by the customer, and the customer is misled
          into believing that the employee has been rewarded for
          providing good service.

          This measure is intended to prevent consumers from being
          misled about the application of moneys they pay as service
          charges by requiring under the Unfair and Deceptive
          Practices Act that a hotel or restaurant distribute moneys
          paid by customers as service charges directly to its
          employees as tip income, or disclose to the consumer that
          the service charge is being used to pay for the employer's
          costs or expenses, other than wages and tips . . . . ”

Id. at 139, 306 P.3d at 184 (alterations in original) (quoting S.

Stand. Comm. Rep. No. 3077, in 2000 Senate Journal, at 1286–87).

          Thus, Villon’s extensive account of HRS § 481B-14’s

legislative history reveals that despite the legislature’s use of

the phrase, “wages and tips” in the statute, its subsequent

insertion of “tip income” was to clarify that the service charges

must be distributed to the employee as “tip income.”            The

legislature specifically sought to meet consumer expectations

“that service charges applied to the sale of food and beverages

by hotels and restaurants are levied in lieu of voluntary

gratuity, and are distributed to the employees providing the

service”; an expectation that resulted in “most consumers [not

tipping] for services over and above the amounts they pay as a

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service charge.”      S. Stand. Comm. Rep. No. 3077, in 2000 Senate

Journal, at 1287.      If the hotel or restaurant did not distribute

the service charges as “tip income,” the statute required

disclosure to the consumer.         The insertion of the phrase “tip

income” reflects the legislature’s focus on ensuring that service

charges are distributed directly as “tips” in a manner that

protects consumers from being misled about the application of

moneys they pay as service charges.

            Accordingly, for the purposes of enforcement under

Hawaii’s UDAP and UMOC provisions, the legislative history

supports a reading of the phrase “wages and tips” in the second

clause of HRS § 481B-14 to specifically mean “tip income,” rather

than “wages.”

B.    Villon’s Holding Is Limited to the Enforcement of HRS §
      481B-14 Under Hawaii’s “Withholding of Wages” Statute, HRS §
      388-6

            The ICA explicitly relies on Villon in its Memorandum

Opinion to conclude that the terms “tip income” and “wages and

tips” in HRS § 481B-14 synonymously bear the meaning “wages,”

concluding: “We need go no further than Villon’s determination

that ‘the plain language of HRS § 481B-14 expressly equates 100%

of a ‘service charge’ with [both] ‘tip income’ and ‘wages and

tips of employees.’”       In so deciding, however, the ICA fails to

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recognize that Villon’s holding is expressly limited to the

meaning of “compensation earned” under HRS § 388-6 (1993).

          In Villon, the issue was whether tips and/or service

charges constitute “compensation earned” within the meaning of

HRS § 388-6, which bars withholding of “compensation earned”

unless authorized by the employee.7        The petitioner, Villon,

sought recovery pursuant to HRS § 388-6 for tips/service charges

withheld without his authorization by his employer, the defendant

hotel.   The defendant hotel argued that the undisclosed amount of

service charges was not “compensation earned” within the meaning

of HRS § 388-6.    Villon, 130 Hawai#i at 136, 306 P.3d at 181.              We

rejected this argument, concluding that a service charge is

“compensation earned” either as “tip income” or “wages and tips

of employees.”    Id. at 136-37, 306 P.3d at 181-82.

          We concluded that under HRS § 388-6, service charges

are “compensation earned” by an employee because they are levied

upon the consumer based upon “‘labor or services rendered by an

     7
          HRS § 388-6 states in relevant part:

          No employer may deduct, retain, or otherwise require to be
          paid, any part or portion of any compensation earned by any
          employee except where required by federal or state statute
          or by court process or when such deductions or retentions
          are authorized in writing by the employee . . . .

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employee,’ usually in lieu of a traditional tip.”            Id. at 135,
306 P.3d at 180 (quoting HRS § 388-1).         Thus, “when a hotel or

restaurant distributes less than 100% of a service charge

directly to its employees without disclosing this fact to the

purchaser, the portion withheld constitutes ‘tip income,’

synonymously phrased within HRS § 481B–14 as ‘wages and tips of

employees.’”    Id.

            Unlike the instant case, which invokes Hawaii’s

consumer protection provisions, HRS §§ 480-2 and 480-13, for

violations of HRS § 481B-14, Villon involved a class action

lawsuit by hotel banquet employees invoking Hawaii’s wage payment

statutes.    Villon addressed the employers’ authority to withhold

tips and service charges under HRS § 388-6, not whether the

employers were required to disclose the withholding to customers.

We explicitly held that, because HRS § 481B–14 defines service

charges as “tip income” and “wages and tips of employees,” the

term “wages” included service charges as tips or gratuities of

any kind “for the purpose of enforcement under HRS § 388-6[.]”

Villon, 130 Hawai#i at 135, 306 P.3d at 180 (emphasis added).                We

did not address whether, under HRS § 481B-14, “tip income” means

“wages” for purposes of disclosure.

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            Throughout Villon, we explicitly differentiated the

phrase “wages and tips” in HRS § 481B-14 from the general term

“wages” as used in other provisions of the HRS.             We explained

that although HRS § 387-1 (1993) defines “wages” to exclude “tips

or gratuities” of any kind, it “is solely for the purpose of

calculating the ‘tip credit’ under HRS § 387–2 (1993 & Supp.

2005), not for the purposes of allowing employers to withhold

‘service charges,’ ‘wages and tips of employees,’ and ‘tip

income,’ from employees under HRS § 388–6.”            Villon, 130 Hawai#i

at 136, 306 P.3d at 181.        Thus, we recognized that the term

“wages” bore a meaning directly related to the purpose of HRS §

388-6.

            The ICA therefore erred in holding that Villon

supported a conclusion that because Kahala Hotel distributed 15%

of the service charges as “wages,” Kahala Hotel had satisfied HRS

§ 481B-14’s mandate to disclose to customers its use of service

charges for wages.

C.    Use of Service Charges To Offset Wage Obligations Is
      Analogous To Using Service Charges To Pay Administrative
      Costs

            Kahala Hotel’s undisclosed use of service charges to

pay wages of banquet employees conflicts with this court’s

decision in Gurrobat.       In Gurrobat, the defendant argued that it

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complied with HRS § 481B-14 because it distributed a portion of

the service charges to managerial employees involved in providing

banquet services to the consumers.         133 Hawai#i at 17, 323 P.3d

at 808.   This court rejected the defendant’s argument, holding

that retaining a portion of service charges to supplement the

income of managerial employees is analogous to using the service

charges to pay the employer’s administrative costs.            Id.   We

concluded that such a practice violated HRS § 481B-14 because

hotels and restaurants are “required to distribute one-hundred

percent of service charge income to non-management service

employees who provided the services for which customers believed

they were tipping” or to disclose their retention of a portion of

the service charge to customers.          Id. at 17-18, 323 P.3d at 808-

09 (second emphasis added).

           In the instant case, Kahala Hotel similarly used the

service charges to pay the employer’s administrative costs, i.e.,

its wage obligations to its banquet employees.           As explained by

Kahala Hotel’s controller, Khara Markham, the entirety of the

service charges are placed in one fund.         Eighty-five percent of

the service charges are then distributed to the banquet

employees, while 15% of the service charges are “retained and at

the end of the month” reclassified to offset Kahala Hotel’s

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“banquet wages.”    Ms. Markham also stated that the 15% is not, in

fact, distributed to the employee as tip income; rather, “it’s

just taken as an offset.”      In other words, 15% of the service

charges were used to offset the expense that the hotel incurs in

paying wages and salaries.       This practice is virtually

indistinguishable from using the money to pay for an employer’s

administrative costs or expenses.

           In Gurrobat, this court reiterated that the evolution

of HRS § 481B-14 primarily focused on the problem of the

“uninformed consumer[], who may not leave additional tips for the

service employees, mistakenly thinking that the service charge

they paid were tips.”     133 Hawai#i at 17, 323 P.3d at 808 (citing

Villon, 130 Hawai#i at 138, 306 P.3d at 183).          We then noted that

toward the end of H.B. 2123’s passage, the legislature also

recognized that “‘moneys collected as service charges are not

always distributed to the employees as gratuities and are

sometimes used to pay the employer’s administrative costs’”;

therefore, the employee “‘does not receive the money intended as

a gratuity by the customer, and the customer is misled into

believing that the employee has been rewarded for providing good

service.’”   Id. (quoting Villon, 130 Hawai#i at 139, 306 P.3d at

184).   Thus, in Gurrobat, this court repeated its holding in

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Villon that HRS § 481B-14 evinces a concern for both the

uninformed consumer as well as the employees who “‘may not be

receiving tips or gratuities from these service charges.’”              Id.

(quoting Villon, 130 Hawai#i at 137, 306 P.3d at 182).

            Accordingly, adopting an interpretation of HRS § 481B-

14 that permits a hotel to use service charges to offset its wage

obligations to its employees, without disclosure to the

consumers, would be directly contrary to this court’s holding in

Gurrobat.   Gurrobat expressly reflects a concern that such a

practice negatively impacts both employees and consumers.              The

employees are deprived of the extra income they would have earned

had the hotel distributed the entirety of the service charge as

“tip income” and, absent disclosure, consumers are misled into

believing the service charges are being used as a gratuity to

employees who provide the services for which customers believe

they are tipping.

                             V.   Conclusion

            For the foregoing reasons, we hold that the ICA erred

in holding that no disclosure to Kawakami was required because

Kahala Hotel had reclassified its management share of the service

charge to pay for its employees’ wages.         Kahala Hotel failed to

comply with HRS § 481B-14’s mandate to either distribute the

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entirety of a service charge directly to its employees as “tip

income,” or to disclose to its consumers its practice of

retaining the service charge.       The April 25, 2014 judgment of the

Intermediate Court of Appeals is vacated and the Circuit Court of

the First Circuit’s January 6, 2011 Order Granting Plaintiff’s

August 19, 2010 Motion for Summary Judgment is affirmed.             We

remand the case to the ICA to address the issues raised by

Kawakami in his appeal.

John Francis Perkin and            /s/ Mark E. Recktenwald
Brandee J.K. Faria
for petitioner                     /s/ Paula A. Nakayama

David J. Minkin and                /s/ Sabrina S. McKenna
Dayna H. Kamimura-Ching
for respondent                     /s/ Richard W. Pollack

                                   /s/ Michael D. Wilson

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