California Supreme Court Announces Major Victory for Hospitality Employers: No Private Right of Action for Tip-Pooling Claims Under Labor Code Section 351

By Aaron Olsen on August 10, 2010

The California Supreme Court has announced what can only be considered a major victory for hospitality employers in California.

California Labor Code section 351 probibits employers from taking any tip that customers may leave for employees. Many hospitality employers have long used tip-sharing policies, whereby tips left by customers are divided among those involved in service. In recent years, those tip-pooling practices have been challenged under section 351 as part of the wave of wage-hour class actions brought against California hospitality employers. While these class actions have proceeded, a threshold issue had not been addressed by the courts — whether section 351 even provides a private right of action by employees.

In a case that has been followed closely by employers in the hospitality industry, on August 9, 2010 the California Supreme Court ruled in Lu v. Hawaiian Gardens Casino, Inc. that employees do not have a private right of action to bring claims regarding their tips under California Labor Code section 351.

Noting that section 351 does not itself provide for a private right of action, the court reviewed the statute’s legislative history and concluded that the legislature had not intended to provide a new statutory mean to recover allegedly misappropriated tips.

While the decision should bring to a end to the tip-pooling class actions filed under section 351, it will not prevent employees from bringing tip-related claims under other legal theories. In fact, the Supreme Court itself opined that such claims might be appropriate under other theories, such as a conversion theory.