Tip Pooling in Casinos

In Lu v. Hawaiian Gardens (2010), the California Supreme Court determined that employees do not have a private cause of action to recover their gratuities (tips) under Labor Code Section 351. The decision creates some uncertainty about enforcement of tips under the Labor Code.

Lu, the employee who brought the lawsuit, was a dealer in a casino. He objected to the casino requiring him to share 15-20% of his tips with fellow employees like hosts, customer service representatives, “floormen,” and concierges. Lu sued under Labor Code Section 351 contending that the tip pooling was depriving him of the tips he earned. He also contended that his employer violated the Unfair Competition Law, Business and Professions Code 17200, by requiring the tip pooling among people who might qualify as agents of management.

The Supreme Court focused on whether the employee had a right to sue to recover the tips, commonly referred to as a private right of action. It examined the Legislative history of Labor Code Section 351 and noted that an employer is subject to a criminal penalty (a misdemeanor) and fines for taking an employee’s tips under that section. It noted that the Department of Industrial Relations has the authority to enforce Labor Code Section 351. The Court determined that it did not provide Lu with a private cause of action.

The Supreme Court upheld the employer’s victory on the private cause of action under Labor Code Section 351. The Court did not resolve whether a violation occurred under Business and Professions Code 17200. The Court suggested the Legislature may wish to modify the Labor Code to give employees a private right of action. It further muddied the water by suggesting that while no private cause of action existed under that Labor Code Section, the employee may still have a claim for conversion. This means that the employee must use a different cause of action to recover tips, it does not allow an employer to retain an employee’s tips.

This information is provided for informational purposes only and should not be construed as legal advice. It should not be acted upon without consulting a licensed California attorney about the facts, particular needs and questions of the person or entity considering this issue.