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“Service Charge” Could Be “Gratuity” to Which Employer Not Entitled

In upholding the sufficiency of a complaint seeking damages for violations of Labor Law section 196-d, alleging that a 15 to 20% “service charge” on catering and hospital forms was actually a “gratuity,” the Second Department wrote:

Labor Law § 196-d provides, in pertinent part, that “[n]o employer . . . shall demand or accept, directly or indirectly, any part of the gratuities received by an employee, or retain any part of a gratuity or of any charge purported to be a gratuity for an employee.” In Samiento v World Yacht Inc. (10 NY3d 70, 74), …the Court of Appeals held that depending upon the circumstances, even a mandatory service charge added to a bill “may be a charge purported to be a gratuity’ within the meaning of [Labor Law § 196-d].” The Court stated that a mandatory service charge can purport to be a gratuity “when it is shown that employers represented or allowed their customers to believe that the charges were in fact gratuities for their employees” (id. at 81). “[T]he standard under which a mandatory charge or fee is purported to be a gratuity should be weighed against the expectation of the reasonable customer” and the “reasonable patron standard should govern when determining whether a banquet patron would understand a service charge was being collected in lieu of a gratuity” (id. at 79). Martin v Restaurant Assoc Events Corp, 2013 NY slip Op 03304, 2nd Dept, 5-8-13

 

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