Law360 (February 15, 2008, 12:00 AM EST) — In a potential blow to the New York restaurant industry, the state’s highest court has ruled
that dining establishments must hand over any obligatory service fees to waiters that customers are tricked into believing are
interchangeable with leaving a tip.
The New York State Court of Appeals ruled on Thursday in favor of the servers of World Yacht Inc. , reversing an earlier decision that
found employers were not required to share mandatory service fees tacked onto the bills of large parties even if customers were explicitly
told that they were gratuities.
“World Yacht’s contention that banquet service charges are not contemplated within ‘any charge purported to be a gratuity’ is incorrect,”
the opinion read. “Even if the charge is mandatory, and not subject to negotiation, when a complaint asserts, as plaintiffs’ complaint
asserts here, that a service charge has been represented to the consumer as compensation to defendants’ wait staff in lieu of the
gratuity, such allegation is covered within the statutory language of Labor Law.”
The suit was brought by a group of World Yacht waiters, who contend that the company had been routinely cheating them out of tips by
refusing to share the mandatory service charges that had been imposed on many diners.
World Yacht, whose ships cruise around Manhattan while patrons enjoy a luxury dining experience, routinely tack on a 20% dining charge
on top of the dining bill, which customers often mistook to be a substitute for the tip.
“Tips are allowed although are seldom collected, allegedly because patrons believe the tip is included in the price of the cruise,” the court
documents state.
In evaluating the employees’ case, the appellate court took to heart the opinion of New York Attorney General Andrew Cuomo and the
New York State Department of Labor.
Both had backed the servers’ contention that the dining cruise company violated labor law by telling banquet patrons that the 20%
service charge would be given to the wait staff as a tip.
“We agree with the attorney general of the state of New York and the NYSDOL that the standard under which a mandatory charge or fee
is purported to be a gratuity should be weighed against the expectation of the reasonable customer,” the opinion read.
The NYSDOL, in a letter of support, asserted that under the reasonable patron standard, the restaurant must be required to pay in full the
percentage of the contract price that the customer was led to believe constituted the gratuity.
World Yacht attempted to argue that the monies should not be considered a gratuity under the state’s labor law since the payments here
were mandatory but the appellate court batted down the claim.
“The language of the statute states that it is a violation of Labor Law § 196-d to ‘retain any part of a gratuity or … any charge purported
to be a gratuity for an employee,” the opinion read.
The appellants were represented in this matter by Scott A. Lucas.
The respondents were represented in this matter by Dennis A. Lalli.
The case is Arnel Samiento, et. al. vs. World Yacht Inc., et. al, case number 17, in the New York State Court of Appeals.
