‘Service charge’ or tip? Pay attention to local laws in addition to state and federal regs — Business Management Daily: Free Reports on Human Resources, Employment Law, Office Management, Office Communication, Office Technology and Small Business Tax Business Management Daily

‘Service charge’ or tip? Pay attention to local laws in addition to state and federal regs

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California employers may incorrectly assume that if they abide by the federal Fair Labor Standards Act (FLSA) and the California Labor Code, they have met their obligations to workers. That may not be true.

Local municipalities can also regulate some aspects of wage-and-hour laws.

Recent case: When the city of Los Angeles passed an ordinance directing certain hotels located close to Los Angeles International Airport to turn “service charges” over to employees as part of their compensation, the hotels sued.

The law came about after many hotels instituted a service charge on room service, bellhop luggage delivery and banquet service.

Los Angeles officials believed customers might believe the service charges were tips that would go to the employee who provided the service, and therefore might not leave additional money.

Employees had complained that their income fell after the service charges began showing up on customers’ bills.

The hotels believed that state and federal laws already comprehensibly addressed tip income and that local governments couldn’t legally step in.

The Court of Appeal of California disagreed.

It carefully analyzed the ordinance and concluded that local governments are free to regulate such service charges, even if federal and state laws regulate tips and gratuities. (Garcia, et al., v. Four Points Sheraton, et al., No. B210720, Court of Appeal of California, 2010)

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