Landmark Case Shakes Hospitality Industry Over Service Charges

The hospitality industry has referred to a 2008 ruling in a New York Court as the “Saint Valentine’s Day Massacre.” While the play on words may be a bit tongue-in-cheek, the ruling has had massive financial repercussions for the service industry, opening the door for lawsuits by current and former employees.

The court’s ruling applied to a broad range of businesses involved in the service industry. Businesses like caterers, cruise ships and restaurants were affected by the ruling. The judge ruled that in these industries, it is illegal to charge a “service charge” or pre-arranged gratuity and not distribute it to their employees—unless they explicitly state that the fee is not to be disbursed to their employees. Such practices were widespread in the industry, and this ruling may have serious ramifications for service industry employers.

This ruling has opened the floodgates against employers who employed tactics like this in the past. In New York, where the case was decided, the statute of limitations for such lawsuits is six years. This means that service industry employees can file suit up to six years after an alleged service charge was withheld. Using this case as a precedent, any employee who was denied money from a pre-charged gratuity or service charge could possibly file a service charge lawsuit against their employer. Judging from the hundreds of lawsuits filed since the ruling, the financial exploitation of employees could be a very widespread issue.

However, these service charge lawsuits may be even more complicated. Under federal law, employers are required to pay employees a minimum wage. For many service industry employees, there is another, even-lower minimum wage. In this case, employees may be paid even less than the minimum wage, with the expectation that tips will make up the difference. In cases where tips and base wages do not add up to the regular minimum wage, it is expected that employers make up the difference. This arrangement has certain tax implications, and employers who withhold these service charges may be able to more easily write these off as wages.

This ruling has influenced hundreds of new lawsuits by employees and former employees against their employers. These lawsuits allege that employers withheld gratuities and service charges, underpaying employees in violation of the law. These service charge lawsuits seek to regain back-owed tips and gratuities in cases where employers withheld these funds.

The service charge lawsuit is Samiento v. World Yacht Inc., Case No. 10 N.Y. 3d 70, in the New York Court of Appeals.

If you’ve had an employer withhold gratuities or tips, you may be entitled to compensation. You can start to explore your options by visiting the Minimum Wage Lawsuits: Service Charge, Wage & Hour Class Action Lawsuit Investigation. Here, you can enter information about your situation for a legal review by a trained expert with a background in this type of litigation. The initial consultation is completely free of charge, but from it, you can receive valuable guidance on the best steps to take in your specific situation.