New York Law Review

Tag: Gratuities

  • Samiento v. World Yacht Inc., 10 N.Y.3d 74 (2008): Employer Cannot Retain Mandatory Service Charges Represented as Gratuities

    Samiento v. World Yacht Inc., 10 N.Y.3d 74 (2008)

    An employer violates Labor Law § 196-d by retaining any portion of a mandatory service charge if that charge is presented to customers as a gratuity intended for the employees.

    Summary

    Restaurant servers sued their employers, alleging violations of Labor Law § 196-d for failing to remit service charges, gratuities included in ticket prices, or automatic gratuities. The plaintiffs claimed that the defendants misled customers into believing that these charges were going to the waitstaff. The New York Court of Appeals held that a mandatory service charge could be considered a “charge purported to be a gratuity” under the statute if represented to customers as such. The court reinstated the plaintiffs’ Labor Law § 196-d claim, finding that the tax treatment of these charges by the defendants could be evidence of such a representation.

    Facts

    Plaintiffs, former and present restaurant servers, alleged that their employers, World Yacht Inc., violated Labor Law § 196-d. World Yacht operated dining cruises in New York harbor, including banquet cruises (private events), general public dining cruises, and special event cruises (e.g., July 4th, New Year’s Eve). The plaintiffs alleged that the defendants misrepresented to customers that a 20% service charge for banquet cruises was a gratuity for the waitstaff, but the waitstaff did not receive this money. They also claimed that for general public and special event cruises, the defendants misrepresented that gratuities were included in the ticket price but only remitted 4-7% to the waitstaff. Tips were seldom collected on cruises because patrons believed it was already included.

    Procedural History

    The plaintiffs filed suit alleging violations of Labor Law § 196-d, General Business Law § 349, and unjust enrichment. The Supreme Court dismissed the General Business Law claim and part of the Labor Law claim related to banquet cruises. The Appellate Division modified, dismissing the unjust enrichment claim and the remainder of the Labor Law claim, holding that the charges were mandatory and not voluntary gratuities. The Appellate Division certified the question of whether its order was properly made to the Court of Appeals.

    Issue(s)

    Whether a mandatory service charge can be considered a “charge purported to be a gratuity” under Labor Law § 196-d when the employer represents to customers that the charge is a gratuity for the employees?

    Holding

    Yes, because the language of Labor Law § 196-d prohibits an employer from retaining “any part of a gratuity or of any charge purported to be a gratuity for an employee,” and this language should be liberally construed in favor of the employees where the employer represents that it is intended for the waitstaff.

    Court’s Reasoning

    The Court of Appeals focused on the plain language of Labor Law § 196-d, which prohibits an employer from retaining any part of a gratuity or any charge “purported to be a gratuity.” The court emphasized that when the language of a statute is clear and unambiguous, courts must give effect to its plain meaning. The court found that the term “any charge purported to be a gratuity” could encompass mandatory service charges if the employer represents to customers that the charge is intended as compensation for the waitstaff in lieu of a voluntary tip.

    The Court also considered the legislative history of Labor Law § 196-d, noting that it was intended to prevent employers from engaging in “unfair and deceptive practice[s]” of retaining money that patrons believed they were giving to employees. The court rejected World Yacht’s argument that the banquet industry was exempt, explaining that the “banquet exception” was meant to allow the pooling and distribution of tips among all banquet personnel. The court noted that the NYSDOL’s interpretation of the statute, which is entitled to deference, supports the conclusion that a banquet charge can “purport[] to be a gratuity.”

    Further, the court held that the employer’s tax treatment of the service charges was relevant evidence. “Charges that are treated as gratuities for tax purposes could also be represented to patrons as being gratuities as well.”

    Regarding the General Business Law § 349 claim, the court found that the plaintiffs failed to show how the customers suffered a detriment by paying the service charges. Regarding the unjust enrichment claim, the court found that because plaintiffs have an adequate remedy at law, this cause of action was properly dismissed. Therefore, that cause of action did not lie.

    In summary, the court emphasized that the crucial factor is whether the employer represents to customers that a mandatory charge is intended as a gratuity for the employees, regardless of whether the charge is voluntary or mandatory. This representation triggers the protections of Labor Law § 196-d.

  • Matter of Professional, Clerical, Technical Employees Assn. (City of Buffalo), 43 N.Y.2d 542 (1978): Public Policy Exception to Labor Arbitration

    Matter of Professional, Clerical, Technical Employees Assn. (City of Buffalo), 43 N.Y.2d 542 (1978)

    An arbitrator’s award that reinstates a municipal employee who admitted to accepting gratuities, even in exchange for immunity, violates public policy by undermining the municipality’s duty to maintain integrity in its ranks.

    Summary

    This case concerns the enforceability of a labor arbitration award that reinstated a city employee who had admitted to accepting gratuities from a vendor. The New York Court of Appeals held that the award violated public policy. The court reasoned that a municipality has a non-delegable duty to ensure the integrity of its public servants. Allowing an arbitrator to reinstate an employee who admitted to criminal complicity compromises this duty and undermines public trust. Even though the employee received immunity from prosecution, the public policy against corruption outweighs the collective bargaining agreement.

    Facts

    A public works supervisor employed by the City of Buffalo admitted to accepting gratuities from a salesman who regularly conducted business with the city. The supervisor testified during the salesman’s bribery trial in exchange for immunity from criminal prosecution. The salesman was convicted. The city subsequently discharged the supervisor based on his admission of misconduct.

    Procedural History

    The employee’s union filed a grievance challenging the discharge. The arbitrator ruled that the penalty of discharge was too severe and ordered the employee’s reinstatement. The City appealed. The Appellate Division vacated the arbitrator’s award. The union appealed to the New York Court of Appeals.

    Issue(s)

    Whether an arbitration award that reinstates a municipal employee who has admitted to accepting gratuities from a vendor violates public policy, thereby rendering the award unenforceable.

    Holding

    Yes, because overriding public policy considerations prevent a municipality from bargaining away its duty to maintain ethical standards for public officers and employees and from being restricted in its power to enforce those standards by discharging those who participate in criminal acts.

    Court’s Reasoning

    The Court of Appeals reasoned that municipalities have a fundamental obligation to maintain integrity within their ranks, which stems from the duty to establish ethical standards for public officers and employees. This duty cannot be bargained away through collective bargaining agreements or delegated to arbitrators. The court emphasized that an elected official must have the ability to remove dishonest employees to effectively fulfill their obligation to the public.

    The court noted that the arbitrator acknowledged the employee’s misconduct and violation of public trust but nevertheless deemed the penalty too severe. The court found this to be an impermissible invasion of the municipality’s authority. The court cited previous cases, emphasizing that the tenor of ethical standards governing conduct in municipal government should not be molded by the pressures of collective bargaining nor left to the discretion of individual arbitrators. The dissenting opinion argued that the city should have moved to stay the grievance proceedings initially, but the majority held that the arbitrator’s award was a nullity due to the overriding public policy concerns.

    As the dissenting opinion stated, “Municipal authorities may neither bargain away their duty to establish ethical standards for public officers and employees (see General Municipal Law, § 806, subd 1) nor be restricted in their power to enforce those standards by discharging those who participate in criminal acts (see Public Officers Law, § 30; Civil Service Law, § 75…)”