Hotels and restaurants are increasingly charging “mandatory service fees” to seduce customers into believing they are tipping servers, when, in reality, they are tipping the establishment. In most cases, this deceptive practice is perfectly legal, even if it causes customers to refrain from leaving real tips. ((Garcia v. Four Points Sheraton LAX, 188 Cal.App.4th 364 (2009).)) The mandatory service fee, not being an amount that a customer has “paid, given, or left” an employee over and above the actual amount due, isn’t a tip at all. Rather, the fee is part of the price of the good or service. ((Lab. Code §350(e); DLSE Op. Ltrs. 1994.01.07 and 2000.11.02.)) L.A.’s exotic dancers and strippers will do a happy dance when they learn that California law carves out an exception for them.
Dancing Around the Law: The “Dancer” Exception to the Tip Law
Under the “dancer” exception to the tip law, any amount a customer pays directly to a dancer is automatically a tip. ((Lab. Code §350(e).)) The fact that a strip club labels the amount the customer pays a “mandatory service fee” isn’t determinative. Courts will go behind the label to see what the fee is really for. Thus, a dancer who receives a $20 “dance fee” and a $10 tip actually receives a $30 tip. ((DLSE Op. Ltr. 2001.06.22.)) The entire $30 is her “sole property.” Of course, a dancer who sells a customer a $10 drink does not get to keep that amount, even if the customer gives it to her directly – the reason being that she isn’t acting in her capacity as a dancer.
The application of the “dancer” exception becomes more difficult when a club purportedly employs a dancer to sell t-shirts on the club’s premises. Surely, a club can employ a dancer to sell a t-shirt to a customer and charge him $10 or even $100 for it. In that case, the dancer would be acting in her capacity as a t-shirt vendor and would have no claim to any of the proceeds from the sale. ((Id.)) But a dancer who sells the shirt she’s wearing, takes it off, and hands it to the customer is performing a striptease, not selling a t-shirt. Because she’s acting in her capacity as a dancer, any amount she receives from the customer would be a tip. ((Id.))
The Exception to the “Dancer” Exception: Mandatory Tip-Pooling
Even if a “mandatory service fee,” “dance fee,” or “t-shirt fee” is a tip, that doesn’t necessarily mean a dancer can keep all of it. Courts have long held that mandatory tip-pooling doesn’t violate the tip law. ((Leighton v. Old Heidelberg, Ltd., 219 Cal.App.3d 1062, 1067 (1990).)) Thus, a club can compel a dancer to tip out bartenders, ((Budrow, 171 Cal.App.4th at 884.)) cooks, ((Etheridge, 172 Cal.App.4th at 923.)) dishwashers, ((Id.)) and anyone else in the “chain of service.” ((Etheridge, 172 Cal.App.4th at 923.)) But a club can’t compel a dancer to tip out an “agent” – someone who has the authority to hire, fire, supervise, direct, or control an employee – even if he spends most of his time performing non-supervisory duties. ((Jameson v. Five Feet Restaurant Inc., 107 Cal.App.4th 138 (2003).)) But a supervisor who merely directs some of an employee’s duties isn’t an “agent” and may participate in the tip pool. ((Avidor v. Sutter’s Place, 212 Cal.App.4th 1439 (2013).))
In fact, a Los Angeles jury recently awarded $6.5 million to 249 dancers after the Paradise Showgirls on Valley Boulevard, a City of Industry strip club, misclassified them as independent contractors and forced them to share their tips with management. So if your club is forcing you to pool your tips with an agent, deducting the amount of your tips from your paycheck, or just pocketing your tips, here’s a tip: don’t keep dancing around the problem. Call an L.A. employment attorney. In many cases, California law entitles you at a “bare” minimum to the full amount of your tips and even punitive damages in amount several times the amount of your tips. ((Louie Hung Kwei Lu v. Hawaiian Gardens Casino, Inc., 50 Cal.4th 592, 603, 604 (2010).))
