Law Offices of Ashley A. Baron
 

Law Offices of
Ashley A. Baron
1315 North Tustin Ave.
Suite I-180
Orange, CA 92867
(714) 974-1400
 
 

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Calif. outlaws charge-card fees on tips, but chain keeps court win

Nation's Restaurant News, March 26, 2001 by Alan J. Liddle

ANAHEIM, CALIF. -- Specialty Restaurants Corp. maintained for years that nothing in California's labor laws prohibited it from withholding a pro-rata share of credit-card processing fees on tips paid by plastic-wielding patrons.

Then last year the operator of 43 dinner houses in 14 states won a court battle with state regulators, who contended unsuccessfully that such fees could not be withheld from workers' tips at the 15 Specialty locations in California.

Specialty, however, has gone from winning that battle to losing the war as the legal ground it stood on shifted.

The state Legislature changed California's labor code effective Jan. 1, blocking Specialty Restaurants and other operators from recovering proportional charge-card processing fees from employees' tips. The change protects charged tips that could exceed $1 billion a year, according to a rough estimate based on official foodservice sales tax reports.

"It upset us," Specialty Restaurant's in-house counsel, Ashley Baron, confessed while discussing the changed law resulting from the passage of Assembly Bill 2509. "We're going to go ahead and comply [with the new law] because we don't believe there are any grounds on which to challenge it."

Judge: Operator can use Ups to defray charge-card fee

Nation's Restaurant News, August 30, 1999 by Amy Spector

SANTA ANA, CALIF. -- A Superior Court judge here set the stage for an expected appeal by state labor officials by rejecting the regulators' efforts to stop a restaurant company from tapping servers' gratuities to pay charge-card fees levied on them.

Specialty Restaurants Corp., the Anaheim-based owner of 13 California dinner houses and 47 others nationwide, won the court decision this month after the state Division of Labor Standards Enforcement sued the company on behalf of servers at The Castaway restaurant in Burbank. Employees there were seeking nearly $7,300 in charge-card fees deducted from their tips over an 18-month period ending in 1997.

Though subject to a "likely" appeal by the state, the court ruling could embolden other operators to begin deducting the proportional amounts of processing fees that credit card companies collect on tips charged by customers. Specialty Restaurants said its fees tied to charged tips are about $70,000 annually in California alone.

However, some restaurant operators, mindful of labor shortages and the potential to alienate tip earners through such deductions, have indicated they are cautiously weighing the court ruling and the possibility of enacting fee-recovery policies.

Waiters lose court ruling on credit card tips

August 13, 1999

Byline:   BERNARD J. WOLFSON

Food servers, cocktail waitresses and other service workers could lose millions of dollars in tips if employers take their cue from an Orange County court decision handed down Thursday.
Superior Court Judge Frederick P. Horn ruled that Specialty Restaurants Corp., an Anaheim company with 60 restaurants nationwide, was not breaking the law by withholding a portion of employee credit card tips to pay for corresponding service charges on the cards.

Credit card companies typically charge retailers fees ranging from 2 to 4 percent of sales. A 2 percent fee, for example, would work out to 20 cents on a $10 tip.

"I wouldn't be in favor of their taking the credit card charge out of my tip, because that's how I make my livelihood, and they're already taxing me on my tips," said Sean McMahon, a waiter at Bobby McGee's restaurant in Brea.

California's Division of Labor Standards Enforcement, which brought the suit against Specialty Restaurants, argued that the practice violates a state law forbidding employers from taking any part of a tip.

Miles Locker, the division's chief lawyer, said his agency has won numerous similar cases in the past, and it is "very, very likely" the state will appeal Horn's decision.

Paying credit card fees is "just the cost of doing business," Locker said. "The decision whether or not to accept credit cards is made by the employer."

Ashley A. Baron, Specialty Restaurant's in-house lawyer, said her company never sees a penny of the fees it withholds from employee tips.

She said it's only fair that employees pay their share of credit card fees because restaurants attract more patrons by accepting the cards and that means more tips.

Richard Simmons, a lawyer for the California Restaurant Association, said most restaurants pay 100 percent of credit card service fees. But collecting a percentage from employees would be "worth millions," he said.

Gross sales by full-service restaurants in California totaled about $9 billion last year, according to Michael Prosio, a lobbyist for the California Restaurant Association. Tips usually range from 15 to 20 percent, though many are in cash.

 

The Orange County Register