The generosity of patrons is not ordinarily among the litany of concerns that keeps restauranteurs up at night. Over the last decade, however, the division of tips among restaurant employees in Massachusetts has spawned many costly lawsuits for restaurants and other businesses. The Massachusetts Tips Act (Tips Act), with its complexities and nuances, along with allowing a prevailing employee to recover triple damages and attorney’s fees, has proven a fertile ground for plaintiffs’ lawyers and a headache for restaurants. Awareness of the Tips Act and which employees are eligible for tips—and which are not—is crucial for all Massachusetts restaurants.

What is the Tips Act?

The Tips Act prohibits employers from retaining, demanding, requesting, or accepting any tip or service charge given by a patron to a wait staff employee or service bartender. Potential violations of the Tips Act include scenarios where a restaurant does not return gratuities to its eligible employees, allows for tips to be pooled with management-level employees, or requires its wait staff employees to provide a portion of their tips to non-eligible employees at the end of a shift.

What is the Problem?

The main dilemma that the Tips Act has created for restaurants is its definition of a “wait staff employee,” which was added by a 2004 overhaul of the Tips Act that led to the recent onslaught of litigation. A wait staff employee is defined as including “a waiter, waitress, bus person, and counter staff, who: (1) serves beverages or prepared food directly to patrons, or who clears patrons’ tables; (2) works in a restaurant, banquet facility, or other place where prepared food or beverages are served; and (3) who has no managerial responsibility.” The definition of a service bartender, furthermore, is defined as an individual who “prepares alcoholic or nonalcoholic beverages for patrons to be served by another employee.” In short, to be eligible for tips and/or tip pooling, a restaurant employee must primarily serve beverages or food directly to patrons, clear tables, or prepare alcoholic or nonalcoholic beverages to be served to patrons and not hold any managerial responsibility.

Complying with the Tips Act has vexed large national chains as much as it has family-owned restaurants. Two recent lawsuits serve as a warning to all restauranteurs about the necessity of strict compliance with the contours of the Tips Act. In one action, wait staff employees of Legal Sea Foods brought suit against the restaurant arguing that it violated the Tips Act by requiring wait staff to divide some of their tips to employees responsible for rolling silverware (along with cleaning tables). The case eventually settled, but not before Legal Sea Foods agreed to pay a class of aggrieved wait staff. Similarly, in another lawsuit that is currently pending, the Chart House was sued by a class of its wait staff because its Boston restaurant was requiring wait staff to share tips with hostesses. The parties have scheduled an upcoming mediation and, unless the Chart House settles the action with the class of its wait staff employees, trial will proceed in the near future.

What is the Solution?

Conscientious and well-prepared restaurants can avoid the headaches and risks of costly, protracted litigation by taking several steps to ensure compliance with the Tips Act. Below are some recommendations that restaurants should consider:

• Develop written job descriptions for all front-of-the-house (FOH) positions. The written job descriptions should be clear as to whether the position has primary responsibilities that would make the position a wait staff employee or service bartender. Most likely, this involves a determination as to whether the position’s primary duties involve the service of food or beverages directly to patrons or the clearing of patron’s tables. Positions that fit within the definition of a wait staff employee or service bartender are eligible to receive tips; those that do not are not allowed to share tips with eligible employees.
• Make sure that tips are not shared with any employees who hold managerial responsibilities. An employee who holds managerial responsibilities, even if responsible for serving patrons directly, may not receive shared tips from eligible employees.
• Develop and enforce written policies for how tips are apportioned among eligible employees. Informal policies or those based upon customary practices may violate the Tips Act, as they create expectations for the wait staff to tip out employees not eligible to share gratuities. Written policies are appropriate for inclusion in an updated employee handbook, to the extent that the restaurant does not already have one.
• Ensure that wait staff employees are not required to share tips with back-of-the-house (BOH) employees. BOH employees do not directly serve patrons or clear patrons’ tables, and they are, therefore, not eligible for tip sharing.
• When there is ambiguity regarding whether an employee is a “wait staff employee,” a restaurant may wish to pay that employee only an hourly rate and not require pooling of tips with that employee to avoid the risk of liability. A bar-back, for instance, may or may not be responsible for directly serving patrons or clearing their “tables.” This ambiguity has not yet led to litigation, and it is unclear how a court would rule if faced with such a lawsuit. The risk of litigation can be eliminated if tips are not shared with such an employee.
• Do not take any adverse actions against an employee who complains or raises concerns about a restaurant’s tipping policies or practices, regardless of whether the complaint has any merit. Massachusetts prohibits employers from retaliating against employees for raising concerns about wages, and a court may treat concerns about tips as falling within the ambit of “wages.”
• Be cognizant that if a tipped employee earning the $2.63 hourly rate spends more than 20 percent of his or her time on tasks that are unrelated to his or her tipped duties, then tip credits cannot be applied to the time spent on non-tip-related tasks to meet the minimum wage under wage and hour laws.

Although the Tips Act creates challenges for restaurants, the challenges are not insurmountable and can be resolved. Employees, however, are becoming increasingly aware of their rights under the Tips Act and will not hesitate to assert those rights. Restaurants, therefore, should be proactive and take steps to ensure compliance.