Tips on Tips! What Your Employer Can and Cannot Do

Tips on Tips! What Your Employer Can and Cannot Do

Since 1975, employers in California are not allowed to take any part of tips given to employees, or use employees’ tips to offset the employer’s payment of wages to the employee. (Cal. Labor Code § 351; Etheridge v. Reins Int’l. California, Inc. (2009) 172 Cal.App.4th 908, 916.) This applies to “any tip, gratuity, money, or part thereof that has been paid or given to or left for an employee by a patron of a business over and above the actual amount due the business for services rendered or for goods, food, drink, or articles sold or served to the patron.” (Cal. Labor Code § 350.)

This rule applies not only to business owners, but their agents, which generally means managerial employees of the employer. Employees whose employers deprive them of tips may seek to recover their lost tips by legal action. And as of January 1, 2026, the Labor Commissioner is authorized to issue citations to employers who violate the rule.

What this rule means in the workplace is not always straightforward. For instance, though an employer is prohibited from taking any part of an employee’s tip, can an employer require employees to pool their tips? What about the rule regarding agents—is an employee who can direct other employees’ work ever entitled to a share of tips? Different arrangements may have different implications for application of the tip rule—for instance, a common tip jar clearly displayed at a counter may be understood as a repository for tips to all workers involved in providing the service, including employees engaged in serving customers who also have managerial responsibilities. California courts provide guidance for applying the rule to various situations, though some questions remain.

Employers May Require Employees to Pool Tips.

Employers cannot keep any portion of a server’s tips, but that does not mean that an employer cannot exercise any control over tipping practices at a given establishment. California employers may require their employees to pool and share tips.

The court in Avidor v. Sutter’s Place, Inc. (2013) 212 Cal.App.4th 1439 examined mandatory tip pooling at a casino after the trial court entered judgment on behalf of the employer casino. There, the casino required card dealers to contribute a fixed amount of their tips to a common account that would be distributed to other employees. (Id. 1442, 1443.) A card dealer filed a class action, alleging that the casino violated unfair competition law because it violated section 351 by requiring dealers to pool their tips even though customers handed dealers tips directly. (Id. 1442-1445.) The plaintiff contrasted the dealers’ situation with that of a server in the restaurant, where a tip might be left on the table for everyone involved in service—as the court explained, the plaintiff argued that “if a tip is given directly to the employee, it must have been intended for that employee, not the broader group of service providers.” (Id. 1445, 1447.)

But California law allows employers to mandate tip pooling. Quoting an earlier case, the court in Avidor observed:

[T]ip pooling has been around for a long time, as has section 351, and had the Legislature intended to prohibit or regulate such practice, it could have easily done so, just as it prohibited the various enumerated employer practices. Further, we find nothing in the legislative history of section 351 or related sections, which precludes such an arrangement. And, as far as we can determine, California has no established policy against tip pooling among employees mandated by the employer [citation omitted].

(Id. 1459.) Accordingly, the appellate court affirmed the judgment in favor of the casino. Settled California law says “[t]ip pools [can] exist to minimize friction between employees and to enable the employer to manage the potential confusion about gratuities in a way that is fair to the employees [citation omitted].” (Id. 1450.)

Further, employer-mandated tip pools can be shared among employees who do not necessarily provide direct service to the tables, if they are involved in the “chain of service.” The court in Etheridge, supra, examined a lengthy history of analysis of the principle that section 351 does not dictate that a tip is the sole property of a particular server, as it provides that tips are the property of an “employee or employees” for whom they are left. (Etheridge, 172 Cal.App.4th at 916-920.) In that case, two servers alleged that their employer had wrongly required them to share with bussers and bartenders, neither of which provided table service. The trial court disagreed, and the appellate court affirmed. (Id. at 910.) The court reasoned that a tip pool could permissibly include anyone who participate in the “chain of service,” because a restaurant “patron tips on all of the service received, not simply the service received by employees the patron can see;” a tip left on a table becomes the property of “employees who participate in the service of that table;” and common sense and fairness dictate that everyone who contributes to a patron’s experience should partake of a reward for good service. (Id. at 922-923.) Thus, all employees in a “chain of service” may be entitled to a share of customer tips.

Limited Supervisory Duties Do Not Always Prohibit Employees from Collecting Their Share of Tips.

An employer may wish to delegate responsibility to employees without depriving those employees of the tips they would otherwise earn from serving the public. Is this permissible?

Sometimes. Where an employee provides service to customers who leave tips in a collective box, the fact that the employee also has limited supervisory duties does not deprive that employee of a share of tips they would otherwise have earned in serving customers.

In Chau v. Starbucks Corp. (2009) 174 Cal.App.4th 688, a Starbucks barista challenged a policy whereby shift supervisors, who spent 90-95% of their time at work performing the same work as baristas, were entitled to a share of tips in the collective tip jar. (Id. 692, 694.) The trial court certified a class action and ruled in the plaintiff’s favor, finding that shift supervisors are “agents” within the meaning of 351. (Id. 691.) The Court of Appeal reversed without deciding whether shift supervisors qualify as agents. (Id. 696.) Instead, the Court of Appeal considered the nature of a collective or communal tip box, and observed that “the money left in the collective tip box is to provide a gratuity to the entire ‘team’ of employees who are serving the customer, and this service team includes baristas and shift supervisors [emphasis in original]” and that neither the plaintiff nor Starbucks disputed that fact. (Id. 697.) Section 351

…does not say that an employee (who is also an agent) cannot keep his or her own tip. The code section does not provide that merely because an employee falls within the definition of an “agent” (e.g., someone who has the authority to “supervise, direct or control” another employee), an employer must bar that employee from retaining a tip that was given to him by a customer for services provided to the customer.

(Id. 698.) Put another way, even if an employee is also a supervisor, that employee may still receive tips if a customer leaves a tip for a service group. “Because a shift supervisor performs virtually the same service work as a barista and the employees work as a ‘team,’ Starbucks did not violate section 351 by requiring an equitable distribution of tips specifically left in a collective tip box for all of these employees.” (Id. 698-699.) In Chau, the court highlighted the existence of a communal tip box. But in a situation where one employee takes a customer’s coffee order, and another employee prepares the drink, both employees have participated in the chain of service, such that if the customer tips (whether by cash or on a credit card), that tip is the property of both employees, arguably even if one of the two employees exercises some supervisory functions in addition to that employee’s service duties.

Automatic Service Charges May Qualify as Protected Tips Under 351.

As of July 1, 2025, restaurants who charge mandatory fees on top of their advertised prices for food items must “clearly and conspicuously display[]” the fee and an explanation of the fee’s purpose. (Cal. Civ. Code §1770(a)(28)(D).) If these fees are for service, are restaurant servers protected by section 351? Or, can an employer use a “service charge” to defray the cost of servers’ wages?

At least one court has found that, where a business imposes a service charge, that “‘service charge’ may be a ‘gratuity’ that Labor Code section 351 requires to go only to the nonmanagerial employees involved with the actual serving of the food and beverages.” (O’Grady v. Merchant Exchange Productions, Inc. (2019) 41 Cal.App.5th 771, 773.) In that case, the plaintiff worked as a server and bartender at a banquet hall, and her employer, a ballroom with banquet facilities, charged a 21% “service charge” to all banquet bills for food and beverages. (Id.) The ballroom kept a portion of the 21% charge and, the plaintiff alleged, distributed the rest to managerial and non-service employees. (Id.) The plaintiff alleged that, because customers generally expect to pay an 18-22% gratuity, when customers received bills including a service charge, the ballroom’s customers anticipated that the charge would be distributed to service staff. (Id. at 773-774.) The trial court dismissed the case, interpreting earlier California decisions to hold that the service charge was not a gratuity under section 351. (Id. at 772.) The Court of Appeal reversed, citing authorities recognizing that section 351 protects not just workers who receive gratuities, but the tipping public, which expects that its gratuities will be given to the workers who provided service. “The purpose of section 351 is to prevent employers from using any gratuity-related practice which reduces an employee’s wages, or appropriates monies belonging to employees, practices which are condemned as a ‘fraud upon the public’ [citations omitted].” (Id. at 778.) Thus, the court found, addressing the ballroom, the “context here is the commercial provision of food and drink. That the service charge is added to the cost of food and drink logically makes it ‘over and above the actual amount due … for … food [and] drink.’ (§ 350, subd. (e).) The fair inference from the allegations is that the service charge is plainly perceived by the customer to be a gratuity, and is intended by the customer to be a gratuity. . . An equally fair inference is that the customer would not intend a gratuity to be pocketed by [the employer].”

Accordingly, a mandatory service charge that an employer imposes on customers may, in some circumstances, constitute a gratuity that the employer may not keep, nor use to offset the cost of an employee’s wages.

Conclusion

Section 351 offers important protection to employees who receive tips, but its application is not always straightforward. If you think that your employer is keeping tips that rightly belong to you and your co-workers, contact us at Bryan Schwartz Law, P.C.