Cal. Supreme Court Finds No Private Right of Action for Tips

In Lu v. Hawaiian Gardens (August 9, 2010) --- Cal.4th ---, 2010 WL 3081272, a card dealer brought a class action action against his employer, alleging conversion and violations of Labor Code and Unfair Competition Law (UCL) arising out of the casino's mandatory tip pooling policy, which required the dealers to share 15-20% of their tips with other employees who provided services to casino patrons. The trial court granted judgment on the pleadings or summary adjudication to the casino on all claims. The plaintiff appealed, and the Court of Appeal affirmed in part and reversed in part.

The Supreme Court granted review limited to the sole issue of whether Labor Code section 351, which prohibits employers from taking employees' gratuities, gives employees a private right of action. The Court held that it does not.

Labor Code section 351 reads, in part:

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.

The Court examined this language and held that it "does not unmistakabl[y] reveal a legislative intent to provide wronged employees a private right to sue." Slip op. at 3. Examining the legislative history, the Court found "no clear indication that the Legislature intended to create a private cause of action under the statute." Slip op. at 5.

In sum, we find that the declaration that “[e]very gratuity” is the “sole property of the employee or employees to whom it was paid, given, or left for” (§ 351), simply affirmed what courts had “long held”: that gratuities ordinarily belonged to the waiter or waitress absent a contrary agreement. (Ops. Cal. Legis. Counsel, No. 20547 (Nov. 4, 1971) Waiters and Waitresses: Tips and Gratuities, p. 1.) It did not reflect a legislative intent to give employees a new statutory remedy to recover any misappropriated gratuities.

Slip op. at 5.

The Court rejected the argument that denying a private right of action would prevent employees from recovering misappropriated tips.

Contrary to plaintiff's suggestion, our holding that section 351 does not provide a private cause of action does not necessarily foreclose the availability of other remedies. To the extent that an employee may be entitled to certain misappropriated gratuities, we see no apparent reason why other remedies, such as a common law action for conversion, may not be available under appropriate circumstances.

Slip op. at 7. Thanks to Scot Bernstein for pointing out that this may overrule the Court of Appeal's holding in Brewer v. Premier Golf Properties (2008) 168 Cal.App.4th 1243 (Labor Code violations sound in contract and do not support an award of punitive damages).