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.