Hawaii Supreme Court Rules on Service Charges

Halfway through last year, the Hawaii Supreme Court ruled against several large hotels, finding that their practices surrounding mandatory service charges were illegal.

The wage and labor lawsuits alleged that several large hotels in the island state were tacking on mandatory service charges on to customer bills, then keeping a percentage of the money. Some of the service charge was returned to employees, but not in the full amount. A key aspect of the wage lawsuits was that the hotels kept patrons in the dark regarding the practice and misled them into believing the customer charges were gratuity.

The Hawaiian Supreme Court case was the culmination of several class action lawsuits filed against hotels and spas by employees arguing that they were denied money that rightfully belonged to the employees.

According to the ruling, business like hotels, caterers and restaurants can now only charge a service charge and keep any of the money if they take the time to explain that a portion of the charge will not go to employees.

Similar cases have been filed in other states, and federal law holds that a service charge does not count as employee’s tip. Some employers have been taken to court over using practices like withholding service charges or counting service charges towards employees’ wages. Under some very specific circumstances, “tip pools” and similar practices may be permissible, but only if they live up to federal laws on the subject.

There are several differences between a service charge and a tip. Under federal employment law, an employer can pay certain employees—typically service industry employees—less than the minimum wage, as long as tips make up the difference between their wage and the minimum wage. In these cases, a tip is an amount of money paid to employees by the customers. Usually tips are distinct from service charges in that tips go directly to the employee, the customer determines the amount, and customers usually have some say in who the tip goes to. In service charges, the amount is predetermined, and it’s the employers who determine how it’s distributed. For example, in many restaurants, a service charge is added for large groups in lieu of a proper tip. This amount is calculated as a part of the bill and goes directly to the restaurant.

The case is Villion v. Marriot Hotel Services Incorporated, Case No. SCCQ-11-9999747, filed in the Supreme Court of Hawaii.

If you suspect that your employer has used “service charges” or other financial skullduggery to keep you from getting tips and other compensations owed to you, you need to remember that you have rights, and there are steps that you can take to find out more. You can start by visiting the 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, and from it, you can receive additional guidance on the best steps to take in your exact situation.