Under California law, employees have the right to keep any tips that they earn. Employers may not withhold or take a portion of tips, offset tips against regular wages, or force workers to share tips with owners, managers or supervisors.
An employer who violates California tip law may be charged with a California misdemeanor crime. S/he could face six months in county jail and/or a fine of up to $1,000.3
Employees whose tips are misappropriated by employers can file a complaint with the California Labor Commissioner’s Office. This office can order employers to pay misappropriated tips to employees.
Labor Code 351 LC is the main California employment law dealing with tips and gratuities. LC 351 states:
“No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for. An employer that permits patrons to pay gratuities by credit card shall pay the employees the full amount of the gratuity that the patron indicated on the credit card slip, without any deductions for any credit card payment processing fees or costs that may be charged to the employer by the credit card company. Payment of gratuities made by patrons using credit cards shall be made to the employees not later than the next regular payday following the date the patron authorized the credit card payment.”
Below, our California labor and employment lawyers answer the following top five questions about California tip laws:
- 1. What are an employee’s rights under California tip law?
- 2. What counts as a tip under California tip & gratuity laws?
- 3. What happens if an employer violates California tipping laws / Labor Code 351 LC?
- 4. How long do employees have to file a lawsuit about a tip law violation?
- 5. What if an employer retaliates against an employee for complaining about a tip law violation?
1. What are an employee’s rights under California tip law?
Under California Labor Code 351 LC, tips are the property of the employee they are paid to or left for.4 This means that an employer may not:
- Take any part of an employee’s tips or gratuities for themselves,
- Deduct any amount from a worker’s wages due to the tips they’ve received, or
- Credit any part of the tips against the tipped employee’s wages.5
Example: Raul has just started working for a car wash, at an agreed-upon regular rate of pay of $15/hour. He finds that he is making about $10/hour in tips.
At payday, Raul’s boss asks him how much he collected in tips. When Raul tells him, his boss says that this means he only has to pay Raul $5/hour. The idea is that tips cover the rest.
What Raul’s boss is saying goes against California tip law. Raul has the right to keep his tips, and his boss can’t reduce his hourly wages by that amount.
Under Labor Code 351 LC, what an employee earns in tips also cannot count toward the minimum wage. California minimum wage laws only apply to what an employer pays—not tips that a customer leaves.
As of 2021, the California minimum wage is $13.00 an hour for companies with 25 employees or less, and $14.00 and hour for companies with 26 or more employees.6
(By the way, workers who earn much of their income from tips must still be paid the minimum wage in California.7 This applies to waiters, bartenders, etc.)
Similarly, tips do not count for calculating overtime pay under California overtime law.
1.1. Who pays the credit card fee on tips?
Tips at restaurants, beauty salons, etc. are often paid by credit card. The employer is required to pay all credit card fees on tips.8
In other words, a boss can NOT deduct the amount of a credit card fee from an employee’s tips. The employees are entitled to receive the full amount of the tip left by the customer.
Example: Amy is working at a nail salon. The owner of the salon encourages customers to leave tips in cash. But sometimes customers add the tip onto their credit card bill. When this happens, the owner deducts a 2% credit card fee when he passes the tip on to Amy.
Amy’s boss is breaking the law. Under California tip laws, employers are responsible for all credit card fees on gratuities and tips.
Also, when patrons leave tips on a credit card, the tips must be paid promptly to the employee. Labor Code 351 requires employers to give tips to employees by the next payday after the tip is paid.9
1.2. Is “tip pooling” legal in California?
Tip pooling arrangements are when a business collects all the tips received by employees and then splits them evenly. This practice is legal in California as long as it is only employees sharing the tips, and not managers who have the authority to hire and fire employees.
Example: A chain coffee shop has a tip jar by the cash register. At the end of each shift, a supervisor collects the tips. At the end of the week, the tips are given out to all employees who worked that week. Tips are divided based on how many hours each employee worked.
This means that employees who worked on busy shifts get the same tips as those who worked slow shifts. But this is permitted under California tip law. 10 11
Tip pooling may include employees who have some supervisory duties, like shift supervisors.12
Pooled tips at a restaurant may also be shared with workers who do not provide table service. This could mean hosts, bartenders, busboys, etc.13
However, pooled tips may NOT be shared with managers who have the authority to hire or fire employees. These managers are considered “agents” of the employer. That means it’s illegal for them to take a portion of tips under Labor Code 351.14
Example: A restaurant requires all its waiters to contribute 10% of their tips to a tip pool. The tips in the tip pool are split between the busboys/bussers, hosts, and dishwashers. This arrangement is legal under California tip law.
But let’s say a new manager at the restaurant tries to participate in the tip pool. She has the authority to hire and fire waiters. This would NOT be allowed under Labor Code 351.
2. What counts as a tip under California tip & gratuity laws?
Under California tip law, a tip is any money that is
- Paid, given to, or left for an employee,
- By a customer of a business, and
- Is not part of the amount the customer was required to pay for services, goods, food, or drink.15
Some businesses will add a required “service charge” to a customer’s bill. Unlike with a traditional tip or gratuity, the customer has no choice but to pay this amount. 16
Right now it is not clear if mandatory service charges are tips. California courts have made conflicting statements on whether they are included under Labor Code 351.17
But if service charges are tips under California tip law, then they must be passed on to employees. They cannot be kept by the business owner or given to managers.
Example: Lauren is a bartender at a banquet hall that serves food and drinks. The banquet hall adds a 21% “service charge” to every contract.
The owner distributes the money collected from this charge to employees. But some of the money goes to managers who don’t actually serve food and drinks.
If this mandatory service charge is covered under California tip state law, then the owner is breaking the law. California tip law does not let employers distribute part of tips/gratuities to managers.
But whether the service charge is a tip depends on the exact facts. For example, it matters how the service charge is presented to employees and customers.18
Also, some California cities require certain businesses to treat “service charges” as tips. These include Santa Monica,19 Berkeley,20 and Emeryville21.
That means that in these cities service charges must be paid to or used to benefit employees providing services.22
3. What happens if an employer violates California tipping laws / Labor Code 351 LC?
Employers who violate LC 351 are guilty of a California misdemeanor crime.23
This means that an employer can face up to sixty days in jail, and/or a fine of up to $1,000, for violating California tip laws.
Example: Steve owns a small pizza restaurant. His wife works as manager. Cashiers and delivery workers have to pool their tips. Steve’s wife always takes 10% of the tips.
Steve and his wife have committed a crime. They can face criminal fines and even jail time.
California gratuity law requires employers to keep detailed records regarding tips. They need to keep accurate records of any tips that they receive directly or indirectly from customers or employees. 24
Tip law violations are serious business. So keeping these records is a very good idea for California employers.
3.1. Can employees sue their employer for violating California law on employee tips?
Employees cannot sue their employers under California’s main tip law, Labor Code 351 LC.25
But there are other legal theories that could work to sue for a violation of California tip law.
For example, an employee could sue an employer for conversion. In this type of suit, the employee argues that an employer has basically stolen his/her tips.26
Employees can also file a lawsuit under California’s Unfair Competition Law. Not following California’s tip law can be a form of unfair business practices.27
Finally, employees can sue for breach of implied contract. This is an argument that the employer broke an agreement with its customers to give all tips to workers.28
3.2. Labor Board complaints about tip law violations
California employees can also file a complaint with the California Labor Commissioner’s Office for a tip law violation.29
The Labor Commissioner’s Office will hold a hearing on the alleged tip law violation.30 This is simpler and faster than a court proceeding.
Let’s say an employee’s Labor Board complaint is successful. In that case, the Labor Commissioner will order the employer to pay the employee what s/he is owed in unpaid tips. If a tip law violation led to an employee getting less than minimum wage, the employer may have to pay extra “liquidated damages” too. 31
4. How long do employees have to file a lawsuit about a tip law violation?
California law sets different “statutes of limitations” (deadlines for filing) for different types of lawsuits. Under California tip law, the important statutes of limitations are:
- A “conversion” lawsuit needs to be filed within three (3) years after the employer broke the law.32
- A tip law violation lawsuit under California’s Unfair Competition Law must be filed within four (4) years.33
- A lawsuit for breach of implied contract due to withheld or diverted tips must be filed within either two (2) or four (4) years. The two-year deadline applies if the contract was an oral agreement not in writing.34 The four-year deadline is for breach of written contracts.35
- Labor Board complaints should be filed within three (3) years of the tip law violation.36
5. What if an employer retaliates against an employee for complaining about a tip law violation?
California employers may NOT retaliate against employees for reporting tip law violations. Workplace retaliation is illegal in California.37
Let’s say an employee files a Labor Board complaint about a company owner withholding employee tips. The owner then fires the employee. This is a form of wrongful termination.
Or let’s say a manager is taking a portion of employee tips. An employee complains to Human Resources about this. The company does not fire the employee. But the manager starts to mistreat him and make his work life unbearable. This could be a form of wrongful constructive termination.
Or maybe an employee who complains about tip law violations doesn’t get a promotion. This could be a case of wrongful failure to promote.
For additional help….
For additional guidance, or to discuss your case with an experienced employment attorney, we invite you to contact us at Shouse Law Group.
We have local employment law offices in and around Los Angeles, San Diego, Orange County, Riverside, San Bernardino, Ventura, San Jose, Oakland, the San Francisco Bay area, and several nearby cities. We create attorney-client relationships throughout the state.
- Labor Code section 351 — Collecting, taking, or receiving gratuity by employer; Deduction from or credit against wages; Gratuity as sole property of employee; Application of section [California tip and gratuity law].
- California Labor Code 354 – Violation [of California tipping law] as misdemeanor; Punishment.
- Industrial Welfare Comm’n vs. Superior Ct. (Cal. Supreme Court, 1980) 27 Cal.3d 690, 730. Minimum Wage, California Department of Industrial Relations. See also Minimum Wage under Federal Law, U.S Department of Labor. See also Fair Labor Standards Act (FLSA).
- Henning v. Industrial Welfare Com. (1988) 46 Cal.3d 1262, 1280.
- Labor Code 351 – Collecting, taking, or receiving gratuity by employer; Deduction from or credit against wages; Gratuity as sole property of employee; Application of section [California tip and gratuity law].
- Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, 1067.
- Based on Davis v. International Coffee & Tea, LLC, E066700 (Cal. Ct. App. Apr. 3, 2018).
- Chau v. Starbucks Corp. (2009) 174 Cal.App.4th 688, 706.
- Budrow v. Dave & Buster’s of California, Inc. (2009) 171 Cal.App.4th 875, 879.
- Jameson v. Five Feed Restaurant, Inc. (2003) 107 Cal.App.4th 138, 140-41.
- Labor Code 350 LC – Definitions [for California tip laws].
- See Searle v. Wyndham Int’l (2002) 102 Cal.App.4th 1327, 1334-35.
- Compare same and Garcia v. Four Points Sheraton LAX (2010) 188 Cal.App.4th 364, 370-71 (both stating that mandatory service charges are not the same thing as tips/gratuities) with O’Grady v. Merchant Exchange Productions, Inc. (2019) 41 Cal.App.5th 771, 786-87 (stating that some mandatory service charges are covered under LC 351).
- Based on O’Grady, supra note 17.
- Santa Monica Municipal Code 4.62.010(g).
- Berkeley Municipal Code 13.99.050.
- Emeryville Municipal Code 5-37.04
- See Garcia, supra note 17.
- California Labor Code 354 – Violation [of California tipping law] as misdemeanor; Punishment.
- California Labor Code 353 – Records [of tips received by employers].
- Lu v. Hawaiian Gardens Casino (2010) 50 Cal.4th 592, 601.
- Same, at 603-04.
- See O’Grady, supra note 17, at 774.
- Same, at 775.
- California Labor Code 355 LC – Enforcement of Article [tipping law]; Disposition of fines. See also California Labor Code 98 LC – Labor Board complaints.
- California Labor Code 98 LC, 98.1 LC – Labor Board Complaints.
- California Code of Civil Procedure 338.
- California Business & Professions Code 17208.
- California Code of Civil Procedure 339.
- California Code of Civil Procedure 337.
- See “Report a Violation: When to Report,” State of California Labor Commissioner’s Office.
- California Labor Code 1102.5 LC – Employer prohibited from retaliation [against employees who report tip law violations].