Who Is Getting Your Tip Money? It Is Time to Put Limits on Tip-Pooling.

Please see the attached letter, which I drafted to send today to the California Supreme Court on behalf of the California Employment Lawyers' Association.

Via First-Class Mail

April 29, 2009

The Honorable Ronald M. George, Chief Justice
and Associate Justices
California Supreme Court
350 McAllister Street
San Francisco, CA 94102

Re: Amicus Curiae Letter (Rule 8.500(g))
Lu v. Hawaiian Gardens Casino, Inc. (2009) 170 Cal.App.4th 466, 88 Cal.Rptr.3d 345
California Court of Appeal, Second District, Division 3, No. B194209, Petition No. 171442

Dear Chief Justice and Associate Justices:

This is a letter under Rule 8.500(g) of the 2009 California Rules of Court in support of the petition for review by the Plaintiff/Appellant in Lu v. Hawaiian Gardens Casino, Inc. (2009) 170 Cal.App.4th 466, 88 Cal.Rptr.3d 345, California Court of Appeal, Second District, Division 3, No. B194209 (hereafter, Lu). This letter, on behalf of the California Employment Lawyers Association (CELA), seeks to have this Court define the scope of permissible tip pooling. The Court of Appeal’s decision in Lu is just one of several recent decisions by Courts of Appeal attempting to define the parameters of permissible tip pooling without Supreme Court guidance.[1] Though this Court has discussed Cal. Lab. Code §351, the basis for the instant dispute (see Industrial Welfare Com. v. Superior Court (1980) 27 Cal.3d 690, 166 Cal.Rptr. 331, and Henning v. Industrial Welfare Com. (1988) 46 Cal.3d 1262, 252 Cal.Rptr. 278), this Court has never weighed in on the extent to which employers may appropriate money given by customers to service employees as gratuities and distribute it to other non-supervisory employees.

California Courts of Appeal have long followed Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, 268 Cal.Rptr. 647 (decided closely on the heels of Henning), which ruled that enforced tip pooling between servers and bussers at a restaurant is permissible under §351. Leighton emphasized that the regulation states that a gratuity is “hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.” (Ital. added to emphasize the plural.) However, recent decisions have begun to extend the tip pooling concept beyond merely multiple service employees assisting a single customer at a restaurant table. Lu stretches the tip pool to sharing tips between a casino dealer (who directly received the tip from the customer for his/her service) and chip runners, hostesses, poker tournament and poker rotation coordinators, customer services representatives or “floormen,” and concierges. Lu, 170 Cal.App.4th at 471. CELA believes that the better-reasoned view is that tip pooling can only be proper, under the plain language of §351, between non-supervisory employees[2] for whom the gratuities in question were “paid, given, or left for.” Under §351, tip income must not be used by an employer to subsidize the wages of other non-supervisory employees who were not responsible for the service which caused the customer to provide a gratuity.[3]

I. Interest of Amicus

The undersigned writes on behalf of CELA, a “person” within the meaning of Rule 8.500(g), seeking to support the petition for review. CELA is a statewide non-profit organization dedicated to protecting workers’ rights. CELA’s member attorneys represent employees in all types of employment cases in state and federal courts and before administrative agencies, including employment discrimination, wrongful discharge, wage and hour, and unemployment insurance matters. In each of these substantive areas of law, CELA’s members and their clients challenge employers who fail to adhere to California and federal employment laws. CELA frequently appears as amicus curiae in matters before this Court, including, e.g., recent appearances in Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 56 Cal.Rptr.3d 880, Gentry v. Superior Court (2007) 42 Cal.4th 443, 64 Cal.Rptr.3d 773, and Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 81 Cal.Rptr.3d 282.

CELA’s members have an abiding interest in the scope of permissible tip pools, directly at issue in this case. In particular, CELA seeks to ensure that the concept of tip pooling is not abused so as to undermine employees’ property interest in their gratuities, guaranteed by Labor Code §351, and that the State’s wage and hour laws are “liberally construed with an eye to promoting [worker] protection,” as this Court required in Henning, 42 Cal.3rd at 1269 (citing Industrial Welfare Com’n, 27 Cal.3d at 700-703). CELA hopes that this Court will not permit an interpretation, like that applied in Lu, which results or could result in tips given directly to millions of California non-supervisory workers being misappropriated to defray employers’ labor costs with respect to other workers.

II. Review is Warranted

In Henning, 46 Cal.3d at 1279-1281, and Industrial Welfare Com’n, 27 Cal.3d at 729-731, the Court applied §351 to eliminate the practice of tip crediting, which had been used to pay service employees receiving gratuities less than the minimum wage, or a lower minimum wage than non-tipped employees. Part of the rationale for these decisions eliminating tip crediting and the two-tiered minimum wage was that “a lower minimum (which in itself is to provide an adequate) wage is only possible because tips are used to subsidize it” (see Henning, 46 Cal.3d at 1278, citing Industrial Welfare Com’n) – and employers should not be able to use tips (the property of the employees who received them) to subsidize otherwise inadequate wages. This Court discussed the legislative history behind §351, noting that the section, in its current form, was designed to prevent employers from “obtain[ing] the benefit (as, in effect, the payment of wages) of tips and other gratuities received by their employees,” and “from taking any tip given by a patron to his employee.” Henning, 46 Cal.3d at 1279.

The Leighton court discussed some practical difficulties behind this public policy, and held, pragmatically, that tip pooling cannot be prohibited in all circumstances, such as where servers and bussers are together working at a restaurant table. The Court of Appeal explained, in language cited by the Lu court and others:

"We dare say that the average diner has little or no idea and does not really care who benefits from the gratuity he leaves, as long as the employer does not pocket it, because he rewards for good service no matter which one of the employees directly servicing the table renders it. This, and the near impossibility of being able to determine the intent of departed diners in leaving a tip, in our view, account for the Legislature's use of the term 'employees' in declaring that 'every such gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.' (Lab.Code, § 351, italics added.) It is clear that the Legislature intended by this section to cover just such a situation." Leighton, 219 Cal.App.3d at 1069.

However, the Lu court disingenuously extends this language to the present situation. CELA hopes this Court will recognize the difference between leaving a gratuity in a tip cup at a coffee shop counter or on a table at a restaurant, where it may be pooled between all the non-supervisory employees providing the service the customers received, and a tip given directly to (for example) a casino dealer working at a table alone, apparently to recognize him/her. In the latter situation, there is no need to divine the customer’s intentions – he/she is tipping the dealer. There is no reason to believe that the customer intended also to recognize chip runners, or hostesses (who are separately tipped), etc. This is not a scenario in which rejection of tip pooling would create counter-productive incentives for employees and workplace strife, as in Leighton, 219 Cal.App.3d at 1070. There, the rejection of tip pooling between servers and bussers might lead to tips being commandeered by the first person to grab them off the table, and infighting as a result. Id. Here, the dealer need not fight for the tips he/she is given or swipe them before other employees notice – the tips are given to or left for him/her directly, and no one else.

The casino simply wants to subsidize the wages of its chip runners and others who do not receive tips by giving them part of the tips earned by dealers. According to Henning, this is against the legislative intent of §351, because it is taking money out of the dealers’ hands and using it to keep down the employers’ labor costs. While CELA would certainly condone an effort to ensure greater pay for chip runners and other non-tipped employees, and they will need to receive greater wages to attract their labor, if they are not receiving portions of dealers’ gratuities, their pay should not come out of the pockets of the tipped employees – but from the casinos.

The plain language of the statute is that the gratuities become the property of the non-supervisory employees for whom they are left. “Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.” Cal. Lab. Code §351. Courts do not need to get into case-by-case findings regarding customers’ intent, which, as Leighton explained, can be vague. But it is safe to hold that, where tips are left in a tip cup or at a restaurant table, they are the property of all non-supervisors involved in providing the customer with good service – whereas, when tips are handed to a casino dealer or left at a casino table where a dealer is still sitting and where he/she is the only person working, the tips are the sole property of that dealer.

III. Conclusion

For the foregoing reasons, CELA hopes this Court will not permit courts to follow Lu, allowing the spreading to non-tipped employees of gratuities earned by and owned by particular employees, designed only to avoid payment of competitive wages in the labor market. Please grant the petition for review.

Thank you for your consideration.

CALIFORNIA EMPLOYMENT LAWYERS’ ASSOCIATION
BRYAN SCHWARTZ LAW

/s/Bryan J. Schwartz
___________________________
Bryan J. Schwartz, SBN 209903
180 Grand Avenue, Suite 1550
Oakland, CA 94612
Tel. 510-444-9300
Fax 510-444-9301
Email: Bryan@BryanSchwartzLaw.com
Website: http://www.bryanschwartzlaw.com/

[1] See also, e.g., Budrow v. Dave & Buster’s of California, Inc. (2009) 171 Cal.App.4th 875, 90 Cal.Rptr.3d 239; Etheridge v. Reins International California, Inc. (2009) 172 Cal.App.4th 908, 91 Cal.Rptr.3d 816.

[2] All courts agree that supervisory employees must be strictly excluded from tip pools, and CELA does not challenge the portion of Lu addressing this issue. See Cal.Lab. 350(a) and (d); Lu, 170 Cal.App.4th at 485-486 (citing Jameson v. Five Feet Restaurant (2003) 107 Cal.App.4th 138, 141-143, 131 Cal.Rptr.2d 771).

[3] See Etheridge, 172 Cal.App.4th 908, discussing Henning and Industrial Welfare Commission (“Even though an employer can no longer use tip sharing to subsidize minimum wages of non-tipped employees, it is possible that an employer could use tip sharing to subsidize market wages of non-tipped employees, resulting in the same evil. Thus, when considering tip pooling, it is important to make certain that the employer is not using the tip pool as a de facto tip credit against market wages.”) (emph. in original). See generally id., 172 Cal.App.4th 908 (Klein, P.J., concurring and dissenting) (“The majority opinion here eviscerates section 351 's guarantee that a gratuity belongs to the employee or employees for whom it was left. The majority opinion authorizes the employer to confiscate a portion of the gratuities left for servers and to redistribute those monies to other employees, so as to subsidize the wages of non-tipped employees, in accordance with the employer's self-interest and priorities. For these reasons, the propriety and parameters of employer-mandated tip pooling warrant the prompt attention of the California Supreme Court or the Legislature.”) (emph. in original).

Using Company Email to Communicate with Your Employment Lawyer

The sanctity of the attorney-client relationship is a fundamental pillar of our legal system, recognized throughout the public and private sector. “[T]he attorney-client privilege is the oldest privilege recognized for confidential communications at common law and is intended ‘to encourage full and frank communications between attorneys and their clients and thereby promote broader public interests in the observance of law and the administration of justice.’” Grimes v. Dept. of Navy, 99 M.S.P.R. 7, 11 (2005) (quoting Upjohn Co. v. United States, 449 U.S. 383, 389, 101 S.Ct. 677, 66 L.Ed.2d 584 (1981)). “The attorney-client privilege protects confidential disclosures made by a client to an attorney in order to obtain legal advice,...as well as an attorney's advice in response to such disclosures.” United States v. Chen, 99 F.3d 1495, 1501 (9th Cir. 1996) (quotation omitted), cert. denied, 520 U.S. 1167, 117 S.Ct. 1429, 137 L.Ed.2d 538 (1997). The attorney-client privilege falls into the class of absolute privileges. Swidler & Berlin v. United States, 524 U.S. 399, 409, 118 S.Ct. 2081, 141 L.Ed.2d 379 (1998). If you are engaged in an attorney-client relationship with counsel at the time of particular communications, then an absolute privilege should apply to those communications.

However, what if you learn that your employer, either intentionally or inadvertently, has come into possession of attorney-client emails sent through a work email account? First, if you learn that attorney-client communications or attorney work product documents are in the employer’s possession, you should immediately seek return of such communications. You should advise the employer that you consider the documents to be attorney-client privileged communications (and possibly attorney work product privileged as well). You should be clear that it is not your intention to waive any attorney-client, work product, or other privileges that apply to these documents.

You can also remind your employer that, under Fed.R.Civ.P. 26(b)(5)(B), after being notified of an inadvertent disclosure of privileged information, “a party must promptly return, sequester, or destroy the specified information and any copies it has; must not use or disclose the information until the claim is resolved; must take reasonable steps to retrieve the information if the party disclosed it before being notified; and may promptly present the information to the court under seal for a determination of the claim.” “Once a party claims the attorney-client privilege, the communication sought to be suppressed is presumed confidential.” La Jolla Cove Motel and Hotel Apartments, Inc., v. Superior Court, 121 Cal.App.4th 773, 791 (2004) (citing Cal.Evid.Code, § 917).

Generally, you can put your employer on notice that the ethical canons of the legal profession preclude the employer from searching intentionally to discover privileged information in an employee’s email account, knowing that such information is subject to an asserted or very likely attorney-client or work-product privilege. Such would include all communications between an employee and his/her employment lawyer. The American Bar Association’s Standing Committee on Ethics and Professional Responsibility, “Formal Opinion 92-368: Inadvertent Disclosure of Confidential Materials (1992),” makes clear that counsel should not seek to review information it has reason to believe was inadvertently disclosed.

If the employer is trying to hold against you something you discussed with your employment attorney on a company email system, you should also remind the employer that privileged communications do not lose their privileged character because they are communicated electronically. See California's Evidence Code § 917(b). See also, e.g., 18 U.S.C. § 2517(4) (wiretap law recognizing that electronic communications may have privileged character); Kintera, Inc. v. Convio, Inc., 219 F.R.D. 503, 514 (S.D. Cal. 2003) (applying attorney-client privilege to email communications). However, attorney-client privilege can be waived, and if the privilege is waived, then those communications may be fair game for employers to use.

The “sacred” attorney-client privilege can be waived “implicitly” only under rare, defined circumstances (see Bittaker v. Woodford, 331 F.3d 715, 718-721 (9th Cir. 2003)), such as (for example) in a legal malpractice action, where the attorney-client communications are directly placed at issue in the litigation. On the other hand, an “express waiver occurs when a party discloses privileged information to a third party who is not bound by the privilege, or otherwise shows disregard for the privilege by making the information public.” Id. at 719. By communicating to the employer seeking return of disclosed information immediately after learning of its disclosure, you convey a strong desire to maintain the privilege. On the other hand, if you forward your attorney’s email to someone else not involved in the attorney-client relationship, you have likely implicitly waived the privilege as to that particular communication.

It is the present policy of Bryan Schwartz Law (www.BryanSchwartzLaw.com) to communicate as little as possible, or not at all, with clients on their work email, because, at the very least, it creates a headache in subsequent litigation when an employer inadvertently discovers attorney-client communications and tries to use them in the case. However, I believe strongly that privileges between employees and their attorneys – not to mention, prisoners emailing their attorneys, and other attorney-client email relationships – would be of little value if, by disclaimer, “Big Brother” could simply deem all communications via particular media as non-confidential, such that privilege would be waived inherently and broadly. Many employees in the workforce do not have private email apart from their work email accounts, and thus would not be able to email their attorneys at all. Perhaps all work email (not only that of the employer against whom a party is litigating) – by virtue of the fact that a non-attorney administrator can access it – would be unprivileged, including all emails sent by attorneys to clients from the attorneys’ own law firms’ email accounts. By this rule, all of the emails between the employer and the employer’s own attorneys regarding your case would also be unprivileged, because privilege was waived when they utilized the company’s email system. Perhaps all email sent via Gmail, Yahoo, Comcast, SBC, and Hotmail would also be unprivileged, since there are no doubt skilled individuals who can access our emails sent via these services as well.[1]

In sum, while the danger of inadvertent disclosure during discovery makes attorney-client communications by work email not a “best practice,” it does not mean that all attorneys and all clients who communicate via a work email have waived their sacred rights. In practice, many or most employers tolerate usage of work email for some personal uses. If the employer demonstrated a widespread enforcement of a “no personal use” policy, such that you and individuals known to you were being routinely counseled and disciplined for using their email to send greetings to spouses or friends, or, if the employer’s email system generally prevented outside emails all together, then perhaps you would be on clear notice that your emails were being monitored and would have a reasonable belief they were non-confidential. However, just because we are aware in the abstract that someone (like a forensic software examiner or technology specialist) could figure out how to probe our email accounts, is not the same as knowing that each of our emails is being actively monitored. By way of contrast, when one calls a credit card company, the phone system indicates on every call that you are “being monitored and recorded for quality and training purposes” – which might defeat an expectation of privacy/confidentiality. See also Cal. Evid. Code. §917(b). In many cases, there is no indication that employees know that each of their emails are being individually monitored. An employee of an employer with hundreds or thousands of employees worldwide need not assume that every communication he/she has with anyone about anything is being read by individuals who are not the intended recipients of the communication.[2]

Even if you could ever have reasonably expected the employer to learn that you did exchange some emails with your attorney while at work (i.e., the identities of your addressees), you would have no reason to believe that the employer at the direction of legal counsel would overtly violate legal ethical obligations by seeking to review the substance of communications known to be between a client and his/her counsel.

Your communications with counsel via work email arguably maintain their privileged character, and should not be employed by the employer against you.

[1] It is no doubt possible for technologically-gifted individuals to listen to attorney-client communications via telephone, too, and yet courts have found that individuals have a reasonable expectation of privacy in their phone conversations. Quon v. Arch Wireless Operating Co., Inc., 529 F.3d 892, 904 (9th Cir. 2008) (citing Katz v. United States, 389 U.S. 347, 353, 88 S.Ct. 507, 19 L.Ed.2d 576 (1967) (“One who occupies [a phone booth], shuts the door behind him, and pays the toll that permits him to place a call is surely entitled to assume that the words he utters into the mouthpiece will not be broadcast to the world. To read the Constitution more narrowly is to ignore the vital role that the public telephone has come to play in private communication.”). Before Katz, courts had found that communications by United States mail could also be entitled to confidentiality/an expectation of privacy. Quon, 529 F.3d at 905 (citing United States v. Jacobsen, 466 U.S. 109, 114, 104 S.Ct. 1652, 80 L.Ed.2d 85 (1984)). Email (and text message) plays a role today like the phone booth and the U.S. mail have played in the past, and the content of messages transmitted via these media can have a reasonable expectation of privacy and confidentiality. Quon, 529 F.3d at 905-906 (citing United States v. Forrester, 512 F.3d 500, 510 (9th Cir. 2008)).

[2] Without having statistical or expert data on point, my experience suggests that virtually every client, co-worker, and friend whose work email permits sending to and receiving from outside parties does have personal communications from time to time on this email system, which he or she does not expect to be read by non-addressees at the employer.

DISCLAIMER: Nothing in this posting is intended in any way to form an attorney-client relationship or any other contract. It is designed solely to provide general information about one area of the practice at Bryan Schwartz Law. Be mindful of any deadlines you have approaching that relate to your legal situation, and make sure that you meet them. Bryan Schwartz Law does not assume any responsibility for advice given regarding any aspect of your case until you have a signed legal services agreement engaging the firm’s representation.