California Court of Appeal Addresses Whether a “Service Charge” Can Be a “Gratuity”
In an unpublished decision, the Court of Appeal, 1st Appellate District, decides that a banquet hall’s imposition of a service to its guests may constitute a gratuity. “An employer is in the business of providing a banquet facility at which food and beverages are served. The employer automatically adds a substantial "service charge" to the contract for every banquet. The issue presented here is whether the "service charge" may be a "gratuity" that Labor Code section 351 requires to go to the non-managerial employees involved with the actual serving of the food and beverages. The Court of Appeal concluded that “there is no categorical prohibition why what is called a service charge cannot also meet the statutory definition of a gratuity.” Therefore, employees who work these types of venues may be entitled to a portion of this “service charge."