State High Court rules that tips are always wages

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in Compensation and Benefits,Human Resources

A class of 750 bartenders, waiters and security guards who worked for the now-defunct Drink and Spin nightclubs in Minneapolis has won a wage lawsuit that made it all the way to the Minnesota Supreme Court.

The employees’ class-action lawsuit claimed the clubs illegally deducted drawer shortages, customer walkouts and unsigned credit card receipts from employee tips. The employees argued that tips are wages and that state law prohibits deductions for shortages without the employee’s permission.

Club owners countered that the employees voluntarily paid out of their tips to avoid disciplinary action.

The case went to a jury, which sided with the owners. The em­­ployees moved for a judgment notwithstanding the verdict, which the court denied on the grounds that gratuities were not wages under state law.

When the employees appealed, the court ruled that gratuities were only wages in cases when an em­­ployee’s pay falls below the minimum wage, which satisfied neither side.

Ultimately, the Minnesota Supreme Court ruled that gratuities are wages under all circumstances, not just when pay falls below minimum wage. That made the deductions illegal.

Note: In light of this ruling, em­ployers faced with cash register shortfalls must get the employee’s permission to deduct amounts from either paychecks or gratuities.

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