GRODENSKY v. CASINO







Filed 3/11/09


CERTIFIED FOR PUBLICATION

IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION TWO

HARVEY GRODENSKY, Plaintiff and Respondent, v. ARTICHOKE JOE’S CASINO et al., Defendants and Appellants.	A119035 (San Mateo County Super. Ct. No. CIV424170)
HARVEY GRODENSKY, Plaintiff and Appellant, v. ARTICHOKE JOE’S CASINO et al., Defendants and Respondents.	A119036 (San Mateo County Super. Ct. No. CIV424170)

STORY CONTINUE FROM PART II….

3. The Equities
Artichoke Joe’s notes that the trial court has the discretion to deny equitable relief even if it finds a violation of the UCL. (See Cortez, supra, 23 Cal.4th at p. 179.) It claims that the lower court “committed error by” not finding that a consideration of the equities mandated the denial of any equitable relief. As already stressed, we review the lower court’s “very broad” discretion in granting equitable relief for an abuse of discretion. (See Bus. & Prof Code, § 17203; Cortez, supra, at p. 180.)
The Supreme Court in Cortez stated “that equitable considerations may enter into the court’s disposition of a UCL action.” (Cortez, supra, 23 Cal.4th at p. 179, italics added.) The court continued: “We agree that equitable defenses may not be asserted to wholly defeat a UCL claim since such claims arise out of unlawful conduct. It does not follow, however, that equitable considerations may not guide the court’s discretion in fashioning the equitable remedies authorized by [Business and Professions Code] section 17203.” (Ibid.) The court proceeded to explain that the lower court must consider the equities when fashioning an equitable remedy. (Id. at pp. 179-180.) The Supreme Court pointed out that “[n]ormally, however, the plaintiff need not show that a UCL defendant intended to injure anyone through its unfair or unlawful conduct. The UCL imposes strict liability when property or monetary losses are occasioned by conduct that constitutes an unfair business practice.” (Id. at p. 181.)
In the present case, the trial court did consider the equity defenses and determined that the casino “failed to demonstrate any and all of these affirmative defenses by a preponderance of the evidence.” For the reasons set forth below, we conclude that the lower court did not abuse its discretion in determining that the affirmative defenses did not exempt Artichoke Joe’s from liability.
a. The Tip Pool’s Benefit to the Dealers and Its Use in the Industry
The casino maintains that the evidence established that a tip pool saves a dealer time and money and is a long-standing industry practice. The casino argues that it did not want to institute the tip pool, which is a financial burden for it to administer, but did so primarily to benefit the dealers and to satisfy the IRS. (See Freis v. Soboroff (2000) 81 Cal.App.4th 1102, 1103 (Freis); Otworth v. Southern Pac. Transportation Co. (1985) 166 Cal.App.3d 452, 458 (Otworth).) Moreover, it asserts that the dealers had accepted tax free income under the TRDA since October 1998, and they should not now be allowed to receive restitution based on the tip pool created by the TRDA. Further, the casino argues that the amount required by the tip pool was less than the amount voluntarily paid by the dealers before the tip pool became mandatory. Additionally, it stresses that the mandatory tip pool relieved the dealers from having to worry about tipping out others.
The cases cited by the casino are inapplicable because, unlike the present situation, the IRS required the actual withholding of money in the cited decisions. In Freis, supra, 81 Cal.App.4th 1102, the owner of certain gas and oil royalties payable by the City of Los Angeles (the city) refused to provide a Social Security number for the purpose of taxpayer identification and the city withheld 31 percent of the payments as backup withholding for federal income taxes, as required by federal statutes and the IRS regulations. (Id. at p. 1103.) The owner sued the city and various officials for conversion and breach of contract; the appellate court affirmed the dismissal of these claims because the federal law required the city to withhold portions of the royalty payments for taxes. (Id. at p. 1104.)
Similarly, in Otworth, supra, 166 Cal.App.3d at page 458, the court held that the employee had no claim for conversion against the employer based on the employer’s withholding taxes as directed to do by the IRS. The court noted that the employee did not allege that he was entitled to possession of the withheld money; nor did he assert that the withholding of the money by the employer was unlawful. (Ibid.)
In contrast to both Freis and Otworth, here, the trial court expressly found that the IRS did not require the tip pooling that Artichoke Joe’s imposed. Indeed, as the trial court noted, Willson admitted at trial that there was no correspondence from the IRS demanding or mandating a tip pool. Further, in the present case, there was no correlation between the tip pool and the tip rate for purposes of IRS declaration of income. The court further found that Willson, not the IRS, came up with the rate to be declared as tips; he also proposed the methodology set forth in the TRDA. Moreover, contrary to the casino’s assertions, the casino did have an interest in the tip pools; Willson testified that he would require a tip-out to floor and shift managers even if there had not been an agreement with the IRS. Unlike the situations in the cases cited by the casino, here, the dealers were entitled to the tips and the casino’s collecting and distributing the gratuities to the shift managers was unlawful and not mandated by the IRS.
The casino’s argument that dealers paid more when they voluntarily tipped out than they do now under the mandatory tipping pool does not require the trial court to reject the remedy of restitution. Prior to the mandatory tip-pooling policy, a dealer could choose whether to give money to other employees and the amount to give. Moreover, under the law, tipping of the shift managers was an illegal practice (Lab. Code, § 351) and therefore it should not have occurred under either a voluntary or a mandatory policy.
We also disagree with Artichoke Joe’s assertion that it did not benefit from the mandatory tipping pool. Both the employer and the employee benefit by the patrons receiving good service and by the employees receiving increased wages as a result of a gratuity. (See Rihn v. Franchise Tax Board (1955) 131 Cal.App.2d 356, 361.) “ ‘ “The usual tips have come to be considered as a part of the cost of entertainment . . . , and it is realized both by the person paying and receiving them that it is a part payment of the wages which the employer compels the persons served to pay. In effect, therefore, the employer and not the employee alone is benefited by the patrons of the company.” ’ ” (Ibid.)
Finally, Artichoke Joe’s points out that Grodensky and the class did not prevail on their claim that requiring the dealers to share their tips with floor managers, board persons, and chip sellers violated Labor Code section 351. They were only successful in arguing that the requirement to share the tips with shift managers violated the statute. We note, however, that the lower court found that the class was the prevailing party in the lawsuit and that particular ruling has not been challenged on appeal. The trial court narrowly fashioned its remedy by ordering restitution only for the money wrongfully given to the shift managers. Since the casino violated the law by requiring the dealers to share their tips with the shift managers, the ordering of restitution was proper.
Accordingly, we conclude that a consideration of the equities does not establish that the lower court abused its discretion in ordering restitution.
b. Estoppel, Waiver, and Laches
Artichoke Joe’s asserts that the doctrine of estoppel should prevent the equitable remedy of restitution. It also maintains that the affirmative defenses of waiver and laches apply. We conclude, however, that the evidence in the record does not support these defenses.
There are four factors generally required to establish estoppel: “ ‘ “(1) The party to be estopped must know the facts; (2) he must intend that his conduct shall be acted upon, or must so act that the party asserting the estoppel had the right to believe that it was so intended; (3) the party asserting the estoppel must be ignorant of the true state of facts; and, (4) he must rely upon the conduct to his injury.” ’ ” (Spray, Gould & Bowers v. Associated Internat. Ins. Co. (1999) 71 Cal.App.4th 1260, 1268.) A party to be estopped typically will have engaged in affirmative conduct that misled the other party. (Ibid.)
The record does not support the casino’s assertion of estoppel. Most obviously, the record shows unequivocally that Artichoke Joe’s implemented the mandatory tip pool and therefore it was not the dealers’ conduct that caused Artichoke Joe’s to act. Further, since Artichoke Joe’s implemented the tip pool, it was clear as to the true state of facts. Thus, the casino’s assertion of estoppel is entirely without merit.
The casino’s argument that laches applies is similarly baseless. The affirmative defense of laches may be applied to bar relief to a plaintiff who has delayed unduly in seeking relief. (Concerned Citizens of Palm Desert, Inc. v. Board of Supervisors (1974) 38 Cal.App.3d 257, 265.) A defendant seeking to apply the affirmative defense must demonstrate prejudice, making it unjust to grant the relief to plaintiff. (San Bernardino Valley Audubon Society v. City of Moreno Valley (1996) 44 Cal.App.4th 593, 607.) Artichoke Joe’s has not presented any evidence that the dealers unreasonably delayed their action or that it suffered any prejudice as a result of any alleged delay. Accordingly, the casino has completely failed to establish that laches applies.
Finally, Artichoke Joe’s presents no argument or evidence to support its claim of waiver. Waiver is the intentional relinquishment of a known right after full knowledge of the facts and depends upon the intention of one party only. (Oakland Raiders v. Oakland-Alameda County Coliseum (2006) 144 Cal.App.4th 1175, 1189.) “ ‘Waiver always rests upon intent. Waiver is the intentional relinquishment of a known right after knowledge of the facts.’ [Citations.] The burden, moreover, is on the party claiming a waiver of a right to prove it by clear and convincing evidence that does not leave the matter to speculation, and ‘doubtful cases will be decided against a waiver.’ ” (City of Ukiah v. Fones (1966) 64 Cal.2d 104, 107-108.) Labor Code section 356 expressly states that the restrictions against the taking of tips paid to employees is a matter of public policy, which cannot be waived by the parties involved.
We therefore agree with the lower court that Artichoke Joe’s has failed to prove an affirmative defense.
D. Attorney Fees
Artichoke Joe’s contends that the lower court erred in determining that Grodensky was entitled to attorney fees as a private attorney general under Code of Civil Procedure section 1021.5.
1. Standard of Review and Code of Civil Procedure Section 1021.5
“ ‘On review of an award of attorney fees [pursuant to Code of Civil Procedure section 1021.5] after trial, the normal standard of review is abuse of discretion. However, de novo review of such a trial court order is warranted where the determination of whether the criteria for an award of attorney fees and costs in this context have been satisfied amounts to statutory construction and a question of law.’ ” (Connerly v. State Personnel Bd. (2006) 37 Cal.4th 1169, 1175.) Under some circumstances, the question whether attorney fees can be awarded “may be a mixed question of law and fact and, if factual questions predominate, may warrant a deferential standard of review.” (Ibid.) If the material facts are largely undisputed and the question posed involves the interpretation or application of the statute, the question posed is one of law and subject to de novo review. (Id. at pp. 1175-1176.)
Artichoke Joe’s contends that the material facts are undisputed, but it then proceeds to argue the facts. Moreover, it is not challenging the construction of the statute, but the court’s application of the statute. Thus, the issues presented are a mixed question of law and fact and, to the extent the factual questions predominate, we apply the deferential abuse of discretion standard of review. (Connerly v. State Personnel Bd., supra, 37 Cal.4th at p. 1175.) “ ‘The pertinent question is whether the grounds given by the court for its [order] . . . are consistent with the substantive law of [Code of Civil Procedure] section 1021.5 and, if so, whether their application to the facts of this case is within the range of discretion conferred upon the trial courts under section 1021.5, read in light of the purposes and policy of the statute.’ ” (Feminist Women's Health Center v. Blythe (1995) 32 Cal.App.4th 1641, 1666-1667.)
Code of Civil Procedure section 1021.5 provides: “Upon motion, a court may award attorneys’ fees to a successful party against one or more opposing parties in any action which has resulted in the enforcement of an important right affecting the public interest if: (a) a significant benefit, whether pecuniary or nonpecuniary, has been conferred on the general public or a large class of persons, (b) the necessity and financial burden of private enforcement, or of enforcement by one public entity against another public entity, are such as to make the award appropriate, and (c) such fees should not in the interest of justice be paid out of the recovery, if any. . . .” If the trial court determines any one of the multiple elements required for an award under Code of Civil Procedure section 1021.5 is absent, that alone will suffice to deny the fee request. (Satrap v. Pacific Gas & Electric Co. (1996) 42 Cal.App.4th 72, 81 (Satrap).)
2. Prevailing Party
The trial court found that Grodensky and the class members were the successful party under Code of Civil Procedure section 1021.5 because they were awarded monetary damages and injunctive relief. The court noted that a party need not prevail on every claim to be considered a successful party within the meaning of this statute. (Lyons v. Chinese Hospital Assn. (2006) 136 Cal.App.4th 1331, 1351-1356 (Lyons).)
The casino in its briefs in this court does not challenge the trial court’s finding on the prevailing party. “ ‘[E]very brief should contain a legal argument with citation of authorities on the points made. If none is furnished on a particular point, the court may treat it as waived, and pass it without consideration. [Citations.]’ [Citations.] This principle is especially true when an appellant makes a general assertion, unsupported by specific argument, regarding insufficiency of evidence. [Citation.]” (People v. Stanley (1995) 10 Cal.4th 764, 793; see also Berger v. Godden (1985) 163 Cal.App.3d 1113, 1119.) The casino has therefore waived any challenge to the lower court’s ruling on the prevailing party.
3. Substantial Benefit and Public Interest
With regard to the enforcement of an important right affecting the public interest, the trial court found the following: “[A] significant public benefit was obtained not just for the members of the class, but as to all card room dealers whether or not they participated in the case, as it freed them from the restrictions of a mandatory tip sharing with shift managers. Indeed, the policy was abolished as a direct result of this litigation by plaintiff. Further, the court found that Artichoke Joe’s violated Labor Code section 351, which is not only a civil wrong but also constitutes a public wrong under [Labor Code] section 354. In addition, it was defendant’s position during the course of the litigation and the trial that tip sharing is commonplace in the gaming industry, and thus the ramifications of the plaintiffs’ adjudication in their favor may have a domino effect upon other dealers at other card rooms. [¶] These factors also support a finding that the action resulted in the enforcement of an important right under the Labor Code affecting the public interest. Indeed, in regard to the Labor Code violations upon which plaintiff and the class prevailed, the Legislature has expressly declared that the restrictions against taking of tips paid to employees is a matter of public policy for prevention of fraud upon the public.”
Here, Grodensky’s action did cause the enforcement of an important right. Not only did the current dealers benefit, but future dealers benefit as the court issued an injunction to prevent any policy requiring dealers to share their tips with shift managers. Additionally, as the trial court stated, the lawsuit did not simply benefit the dealers, but also benefited the public. The purpose of Labor Code section 351 is “to prevent fraud upon the public in connection with the practice of tipping . . . .” (Lab. Code, § 356.)
Artichoke Joe’s argues that Grodensky had to demonstrate that the lawsuit benefited the public and that he “was not motivated by his own pecuniary interests.” It maintains that Grodensky presented no evidence on this issue. The question is not whether Grodensky had a pecuniary interest but whether the interests of all dealers and the public were incidental to Grodensky’s primary objective of obtaining his tip money. (See, e.g., Planned Parenthood v. City of Santa Maria (1993) 16 Cal.App.4th 685, 691.) When the interests of the public are incidental to the plaintiff’s monetary interests, an award of attorney fees is not warranted. (Ibid.) In the present case, the trial court found that the litigation transcended Grodensky’s financial interests, and the facts that he sought an injunction and obtained relief for current and future dealers support this finding. Additionally, as discussed above, the lawsuit did benefit the public by preventing Artichoke Joe’s from fraudulently taking money left as tips for the dealers from the public. Therefore, the record supported a finding that the public interest trumped Grodensky’s pecuniary interest in the lawsuit.
Accordingly, we conclude that the lower court did not abuse its discretion in finding that the lawsuit was brought to vindicate the public interests.
4. Disproportionate Financial Burden
Artichoke Joe’s argues that Grodensky and the certified class did not establish that the necessity and financial burden of private enforcement made an award of attorney fees appropriate. The casino claims that Grodensky’s pecuniary interest in the lawsuit and the amount of Grodensky’s pecuniary interest provided him with a sufficient litigation incentive and therefore the lower court abused its discretion in awarding attorney fees.
The trial court found that the costs of prosecuting the case transcended the personal interest and personal stake of Grodensky and that it was anticipated that the cost to litigate the action would surpass the individual recovery to Grodensky. The court explained: “For example, even if plaintiff had won recovery of all of his contributions to the tip pool––which he did not win––his damages would have been in the range of approximately $31,000 ($4.2 million collected in the pool, with 137 putative class members). This case was never a ‘sure thing,’ and dealt with issues of first impression at the time commenced. It was a risky case, and also involved the dilemma of plaintiff and other class members suing their employer. That plaintiffs’ class counsel would be expected to be compensated on a contingency basis does not undercut the propriety of a statutory award of fees under [Code of Civil Procedure] section 1021.5.”
Code of Civil Procedure section 1021.5 “is intended as a ‘bounty’ for pursuing public interest litigation, not a reward for litigants motivated by their own interests who coincidentally serve the public. [Citations.] ‘The private attorney general theory recognizes citizens frequently have common interests of significant societal importance, but which do not involve any individual’s financial interests to the extent necessary to encourage private litigation to enforce the right. [Citation.] To encourage such suits, attorneys fees are awarded when a significant public benefit is conferred through litigation pursued by one whose personal stake is insufficient to otherwise encourage the action.’ ” (California Licensed Foresters Assn. v. State Bd. of Forestry (1994) 30 Cal.App.4th 562, 570.)
“ ‘An award on the “private attorney general” theory is appropriate when the cost of the claimant’s legal victory transcends his personal interest, that is, when the necessity for pursuing the lawsuit placed a burden on the plaintiff “out of proportion to his individual stake in the matter.” [Citation.]’ ” (Woodland Hills Residents, Inc. v. City Council (1979) 23 Cal.3d 917, 941.) A court generally determines whether the litigation places a disproportionate burden on the individual by comparing the expected value of the litigation at the time it was commenced with the costs of litigation. (See Los Angeles Police Protective League v. City of Los Angeles (1986) 188 Cal.App.3d 1, 9-10 (Los Angeles Police Protective League), overruled on the standard of review it used in Graham v. DaimlerChrysler Corp. (2004) 34 Cal.4th 553, 578.)
In the present case, Grodensky claimed that the costs of litigation exceeded $650,000. The trial court determined that, even if Grodensky had won recovery of all of his contributions to the tip pool, his damages would have been about $31,000. The trial court further noted the risk of the lawsuit.
Rather than focus on what the court stated in its decision, Artichoke Joe’s, in its opening brief in this court, asserts that Grodensky’s argument was legally incorrect because he stated that the necessity prong should be evaluated by looking at the class’s actual recovery ($439,009.55) discounted by his chances of winning, which he placed at 35 percent. This figure of the actual recovery discounted by his chance of winning was, according to Grodensky, much less than his costs of $650,000. The casino argues that using the actual recovery of $439,009.55 rather than the expected recovery is improper. (See Satrap, supra, 42 Cal.App.4th at p. 79.)
Artichoke Joe’s argues that the expected recovery far exceeded the actual recovery. It maintains that the total value of the tip pool contributions was $4,283,553 and that Grodensky further sought liquidated damages in an amount equal to the value of the contributions, an award of statutory attorney fees, an award of punitive damages pursuant to the tort claim for unlawful conversion, and, on behalf of himself, an enhancement. The casino acknowledges that the court dismissed the tort claim before trial, but it maintains that Grodensky still valued his lawsuit as worth more than $9,367,00.^[1] It asserts that, with a potential punitive damage award, the potential recovery at the time this case was filed could have exceeded $20 or $30 million.
The actual methodology proposed by Grodensky, but not used by the trial court, for obtaining the expected value has been used by some other courts. (See, e.g., Los Angeles Police Protective League, supra, 188 Cal.App.3d at pp. 9-10, Beasley v. Wells Fargo Bank (1991) 235 Cal.App.3d 1407, 1414, overruled on issue of recovery of costs for expert fees in Olson v. Automobile Club of Southern California (2008) 42 Cal.4th 1142, 1151.) However, as the Beasley court acknowledged, the actual value can only be used when there is little difference between the actual and expected value. (Beasley, supra, at p. 1414.) Here, the casino claims the expected value was over $9 million and Grodensky asserts the expected value was about $2.5 million. Even if we were to accept Grodensky’s assertion that the expected value is $2.5 million, this amount significantly exceeds the actual recovery of $439,009.55. Thus, although it may be proper to use the actual value in some cases, it should not be used in the present case.
The trial court, as already discussed, did not use the actual value of the recovery. The court’s statement of decision makes it clear that it used Grodensky’s expected recovery. In its reply brief, the casino for the first time argues that the lower court’s analysis was incorrect because it used Grodensky’s individual stake rather than the potential class recovery. We agree that when the court evaluates the estimated value of a case filed as a class action, a court must estimate the value of the entire case and not merely the value to each member of the proposed class. (Beasley v. Wells Fargo Bank, supra, 235 Cal.App.3d at p. 1415.)
As already noted, if any one of the multiple elements required for an award under Code of Civil Procedure section 1021.5 is absent, that alone will suffice to deny an attorney fee request. (Satrap, supra, 42 Cal.App.4th at p. 81.) Here, since the court did not use a proper method for assessing the element of disproportionate financial burden, we cannot determine whether it would have found this element present. We therefore remand for the trial court to consider this element using the proper methodology.
When assessing the disproportionate financial burden, the trial court should use the two-step test, but use the expected (not the actual) value for the entire class (not the value for Grodensky individually). Thus, it should determine the expected value and then discount this benefit by some estimate of the probability of success at the time the vital litigation decisions were made. (Los Angeles Police Protective League, supra, 188 Cal.App.3d at p. 9.) The trial court, having heard all the evidence and arguments “is in a far better position than this court to assess what the plaintiff's realistic expected recovery was in this case, and we shall defer to its judgment.” (Satrap, supra, 42 Cal.App.4th at p. 80.) Similarly, the trial court is in the best position to determine the reasonableness of Grodensky’s estimate that the probability of success was 35 percent. Once the court determines the estimated value, it should compare this value to the actual litigation costs. (Los Angeles Police Protective League, supra, at p. 10.) In general, a fee award will be appropriate unless estimated value “exceeds by a substantial margin the actual litigation costs.” (Ibid.)
Additionally, the trial court should consider whether the benefits achieved for others is high or minimal. (Los Angeles Police Protective League, supra, 188 Cal.App.3d at p. 16.) “Where the benefits achieved for others are very high it will be more important to encourage litigation which achieves those results. Accordingly, it will be more important to offer the bounty of a court-awarded fee than where the public benefits are less significant. Thus, the courts should be willing to authorize fees on a lesser showing of need than they might where the public benefits are less dramatic. This means the court sometimes should award fees even in situations where the litigant’s own expected benefits exceed its actual costs by a substantial margin. [¶] In contrast, where the public benefits are rather modest the courts should award fees only where the litigant’s own expected benefits do not exceed its costs by very much (or possibly are even less than the costs of the litigation).” (Ibid.)
5. Fees from the Class Recovery
The trial court ruled: “The interests of justice would be advanced by not requiring that all fees be paid out of the recovery, given that the amount of fees would be most if not all of the monetary relief here. Further, where the ‘recovery’ is non-monetary relief, such as injunctive relief, this prong of [Labor Code section] 1021.5 does not apply.” The court cited Lyons, supra, 136 Cal.App.4th 1331. (See id. at pp. 1354-1355 [the trial court erred by simply looking at damages sought when plaintiff and counsel stated that they knew they were unlikely to prevail on the tort damages claim but they continued to pursue the injunctive relief even after the arbitrator denied the plaintiff any recovery on the tort claims and the plaintiff no longer had any personal stake in the outcome].)
Casino Joe’s does not argue that the lower court abused its discretion in finding that the final element set forth in the Code of Civil Procedure section 1021.5 was satisfied and therefore any appeal on this basis is waived. (See, e.g., People v. Stanley, supra, 10 Cal.4th at p. 793.) Further, the record amply supported a finding that this element was satisfied. Indeed, the attorney fees of $650,000 exceeded the amount of recovery, which was $493,009.55. (See Los Angeles Police Protective League, supra, 188 Cal.App.3d at p. 14 [“This disparity between financial burden and financial benefit is enough in itself to satisfy the [last] element of the section 1021.5 test”].) Additionally, Grodensky also sought an injunction, which was non-monetary relief.
Although we are remanding for the trial court to use the proper test to determine whether the burden of private enforcement prong of Code of Civil Procedure section 1021.5 is satisfied and therefore attorney fees should be awarded, no other challenge to the award of attorney fees is proper. The trial court did not abuse its discretion in finding that the other elements of Code of Civil Procedure section 1021.5 were met.
II. The Appeal of Grodensky and the Class
A. The Tip Pool and Labor Code Section 351
Grodensky and the class maintain that requiring the dealers to participate in the tip pool violated Labor Code section 351. The trial court found that the mandatory tipping pool did not violate Labor Code section 351 and that only the employer and the employer’s agents were barred by the statute from taking a portion of the tips. As discussed earlier (see discussion of rules of statutory construction, part I.B.1., ante), the interpretation of a statute is a question of law that we consider de novo on appeal. (Burden v. Snowden (1992) 2 Cal.4th 556, 562.)
The question whether Labor Code section 351 permits an employer to require a tipping pool among employees has been addressed by other courts. In Leighton, supra, 219 Cal.App.3d 1062, the court considered a claim by a waitress that she was wrongfully discharged for refusing to share her tips with the busboys. In concluding that Labor Code section 351 did not bar an employer-mandated tipping pool, the court noted that the statute “expressly prohibits various employer practices,” but the statute did not even mention tip pooling. (Leighton, supra, at p. 1067.) The court added that tip pooling has a long history among commercial establishments and, had the Legislature intended to prohibit such a practice, it could have done so, especially since Labor Code section 351 has been frequently amended. (Leighton, supra, at p. 1067.) The purpose of Labor Code section 351, according to the Leighton court was to “ensure that employees, not employers, receive the full benefit of gratuities that patrons intend for the sole benefit of those employees who serve them.” (Leighton, supra, at p. 1068.) The court elaborated, “as spelled out in the language of the statute, [the purpose of the statute] is to prevent an employer from collecting, taking or receiving gratuity income or any part thereof, as his own as part of his daily gross receipts, from deducting from an employee’s wages any amount on account of such gratuity, and from requiring an employee to credit the amount of the gratuity or any part thereof against or as a part of his wages.” (Ibid.)
In Leighton, the waitress argued that the restaurant had illegally taken her tip money because the tipping of the busboys was at the “behest” of the employer restaurant. (Leighton, supra, 219 Cal.App.3d at p. 1069.) In rejecting this argument, the Leighton court pointed out that the tip left by the patron is for the service provided and, as long as the employer does not obtain a portion of it, the tip may go to any of the employees directly servicing the table. (Ibid.) Further, Labor Code section 356 specifies that the gratuity is to be the “sole property” of the “employee or employees,” and therefore the tip is the property of all employees that provide service. (Leighton, supra, at p. 1069.)
The Leighton court concluded that an employer-mandated tip pooling policy “is one of common sense and fairness, and protects the public, the employees and the restaurant employer. The public leaves a tip for those employees who actually service the table, and has a right to expect that those employees receive the gratuity to the exclusion of the employer.” (Leighton, supra, 219 Cal.App.3d at p. 1070.) Such a policy ensures, the court explains, “a fair distribution of the gratuity to those who earned it, making certain that each [employee] gets his fair share.” (Id. at p. 1071.) Further, this policy encourages the best possible service, which helps the employer by enhancing the restaurant’s reputation. (Ibid.)
The holding in Leighton was followed by the appellate court in Jameson v. Five Feet Restaurant, Inc., supra, 107 Cal.App.4th 138 (Jameson). (See also Budrow v. Dave & Busters of California, Inc. (March 2, 2009, B205026) ___ Cal.App.4th ___ [2009 WL 503359] (Budrow) [Labor Code section 351 does not require that those sharing in the tips at a restaurant directly serve the table].) In Jameson, the reviewing court affirmed the lower court’s judgment that the restaurant’s forcing the waitress to share her tips with floor managers violated Labor Code section 351. (Jameson, supra, at p. 143.) The court noted that tip pooling is permissible as long as no portion of the tip is collected by the employer or the employer’s agent. (Ibid.) The court concluded that the record before it supported a finding that the floor manager was an agent of the employer restaurant. (Id. at pp. 144-145.)
A federal court, which conducted its own independent interpretation of Labor Code section 351, stated that it agreed with the reasoning of both Leighton and Jameson. (Louis v. McCormick & Schmick Restaurant Corp. (C.D. Cal. 2006) 460 F.Supp.2d 1153, 1157-1158.) In Louis, a waitress contended that the restaurant’s policy of compelling her to share a portion of the tips left by the patrons she served with non-managerial employees who did not directly service those patrons at their tables violated Labor Code section 351. (Louis, supra, at p. 1156.) The federal court concluded that the statute “does not prohibit tip sharing among employees who are neither employers nor agents.” (Id. at pp. 1157-1158.) It concluded, “Thus, the fact that an employer requires a server to pool tips with other service employees who do not hire, fire, supervise or control their co-workers does not constitute a ‘taking’ as that term is used in [Labor Code section] 351.” (Id. at p. 1158; see also Matoff, supra, 439 F.Supp.2d 1035 [employer-mandated tip pools are lawful under Labor Code section 351].)


TO BE CONTINUED AS PART IV….



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