Madison Square Garden Slammed with Service Charge Lawsuit

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A class action lawsuit has been filed against Madison Square Garden (MSG) by service workers who claim that the management improperly took money intended as tips. The plaintiffs allege that MSG has been imposing service charges to the guest, but had been hiding it by calling the charges gratuity fees on the guest check.

Several service workers who have been employed at MSG are involved in this service charge lawsuit. Attorneys who represent the service workers were the ones who brought the class action lawsuit against MSG, stating that the industry violated New York Labor Law Section 196-d. MSG allegedly kept a large fraction of the service charges when they should have been fully distributed among the service workers.

MSG rebutted this statement by pointing out that these service charge allegations are preempted by federal law, and are subject to the establishment’s mandatory grievance and arbitration under a collective bargaining agreement, which followed legal guidelines. Despite the defendant company’s attempt to dismiss the service charge lawsuit, the argument was rejected by the presiding Judge Dianne T. Renwick, who allowed the case to continue on.

The servers claim that after a sporting or entertainment event, MSG required customers to pay a service charge in the amount of 20 percent of the total charge assessed for all food and beverages. Like most restaurant establishments, MSG imposes this additional charge due to the extra services the employees must do for the event. This includes event setup and take down, and extended shift time. While service charges are normal, it is illegal to not distinguish between a service charge and a tip.

Essentially, the defendant company led customers and patrons to believe that the service charges were entirely for the staff. However, MSG allegedly failed to mention that these service charges are directly sent to management, and not to the servers. This confusion causes customers to leave little to no tip at all during these events. Additionally, once MSG management received the gratuity money, it allegedly did not distribute it to the service staff, allowing the plaintiffs’ argument that the defendant committed a violation of state law to proceed.

Under New York Labor Law Section 196-d, no employer or agent of any cooperation may demand or accept a gratuity fee, or retain part of a gratuity fee when it was originally meant for the employee. According to Judge Renwick, the defendants violated this state law by withholding information about who would actually receive the service charges and for failing to distribute the gratuities among the servers.

Overview of Service Charges Under FLSA Regulations

The Fair Labor Standards Act (FLSA) regulates service charges, but officially distinguishes them from tips. There are several differences clarified by the FLSA. Employers and employees are encouraged to be aware of these distinctions. These key differences between service charges and tips are:

• There is no customer discretion: A service charge is a required payment, and a customer has no influence on deciding the amount, whether to pay the charge or not, or who receives the payment.
• A service charge is part of the employer’s gross receipts, which means that the employer may choose to retain the gain or distribute all or part of it to employees. Therefore, service charges are not counted as tips, but customers are often not told this to retain their patronage.

Join a Free Class Action Lawsuit Investigation

If you were denied service charges or mandatory tips, or suffered some other sort of wage and hour violation, you have legal options. Please visit the Minimum Wage Lawsuits: Service Charge, Wage & Hour Class Action Lawsuit Investigation. There, you can submit your claim for a free legal review and if it qualifies for legal action, a seasoned service charge lawyer will contact you for a free, no-obligation consultation. You will be guided through the litigation process at no out-of-pocket expenses or hidden fees. The service charge attorneys working this investigation do not get paid until you do.