On February 14, 2008, the New York Court of Appeals issued a ruling regarding the use of restaurant/banquet facility service charges. In response to concerns raised by many of our New York members, NCA is issuing this Alert to clarify what the ruling means.
In Arnel Samiento, et al. v. World Yacht, Inc, et al., 17, a dinner cruise company allegedly told their customers that the service charge added to the ticket cost was to cover tips. As such, the customers never tipped their servers. Unfortunately, World Yacht never distributed the service charge to the wait staff. Naturally, the servers sued.
New York law is very clear that tips given to wait staff may not be kept by employers. However, service charges may be kept by employers. The question presented in this case was: May an employer keep a service charge that its customers believe covers the gratuity?
The Court of Appeals stated that New York law prohibits an employer from keeping any part of a gratuity, or a charge purported to be a gratuity, given for an employee. The court went on to say that if it could be shown World Yacht did something to lead its customers to think the service charge would cover the gratuity then that service charge really was a gratuity and it could not be kept by the cruise line.
So, what does this mean for your club?
If your club does not allow tipping, this ruling has no effect on you. Since gratuities are not part of your club, no member or staffer could be confused regarding what your service charges cover. Thus, you may continue to charge a service charge and keep that money without any concern.
If your club does allow tipping, make sure all members and staff understand what the service charge covers by specifically stating whether it does or does not include the gratuity. An appropriate way to communicate your intent would be to include the following language wherever you state a service charge is added:
Service Charge $___ (excluding gratuity)
OR
Service Charge $___ (including gratuity)
By adding this language, your members will know exactly what the service charge covers and they will tip or not tip accordingly. Additionally, your wait staff will know exactly what it can expect and from whom following each event.
In its simplest form, the World Yacht case was about an employer who allegedly tried to manipulate New York law by calling the fee one thing when it was really something else. To avoid this problem and potential litigation brought by your employees, ensure your members and staff know when the service charge covers tips and when it does not. And, of course, if the service charge includes the gratuity, then make sure it gets to your servers.