Ukrainian Law Blog: How Much to Tip?

By Zosha Millman | LXBN | May 2, 2016

The fight for minimum wage has won over a lot of areas across the country. Which is good because tipping seems increasingly on the outs.

More and more employers are doing away with the practice of tipping, a move which could have some legal advantages down the road. The question is, will employees also reap the benefits?

Uber, as part of settling a couple lawsuits for its employment practices, agreed not to get in the practice of tipping anymore. Some thought the company might get on board with the practice and incorporate it into its app—that is, until the company released a statement that in no uncertain terms let people believe they were encouraging the practice.

“Tips are not included on Uber’s platforms (except on UberTAXI), and…tipping is neither expected nor required,” said the company in their public policy blog on Medium. “When Uber started six years ago, we thought long and hard about whether to build a tipping option into the app. In the end we decided against including one because we felt it would be better for riders and drivers to know for sure what they would pay or earn on each trip—without the uncertainty of tipping.”

As Gizmodo writes, it’s not that the practice of tipping is without problems. But Uber is not exactly helping drivers reap the benefits of tipping:

Uber has built its business model by discouraging the practice of tipping at the expense of workers. Beyond the obvious losses drivers incurred because they didn’t receive the customary gratuity for their work, the suits claimed that Uber enriched itself by marketing its service as gratuity-free: Passengers were led to believe that gratuity was included in their cheap fares—when in fact this isn’t true.

The life of an Uber driver is very precarious. The company treats drivers as contractors to avoid paying benefits, and it routinely discounts fares while subtracting higher fees. Drivers don’t have any control over how much they make, and like chronically underpaid workers in other industries, tipping is a way to make up some of the difference.

And the sharing economy isn’t the only place that worry is happening. As minimum wages rise employers have been looking for a way to ease the financial burden they might be placed under now. For some restaurant owners in Seattle, scrapping the practice of tipping and immediately bumping all wages to $15 an hour (which they’re in the process of raising to anyway) was just the most logical financial move in anticipation of the eventual minimum wage shift. And a mandatory 20 percent service charge could make up the difference in profits. Although, that might not be the case for workers.

“In lots of cases, service charges impersonate tips from the consumer’s perspective but actually just go into the pocket of the employer,” Sage Wilson of Working Washington, a worker-advocacy organization, wrote to The Stranger. “It’s pretty clear under the law that you can call anything a service charge and do with it what you will.”

Technically Seattle restaurants are required to give customers notice of how much of the service charge actually goes to their workers, but they’re not legally required to give it back to the staff like they are with tips. What’s more many in the industry claim there’s no incentive for businesses to comply, since there’s no penalty if they don’t disclose. And as is often the case in restaurant and other service industry jobs, workers don’t always know their rights and those breaking the law might not be so quick to inform them.

In both these cases, we see that waffling on whether there’s an extra cost to service is creating a lot of problems. In the eyes of the law, a strict “no tipping” policy might be the best avenue, as Robert Whitman,Joanna Smith, and Samuel Sverdlov write for the Wage & Hour Litigation Blog:

Historically, restaurants have been able to offset part of their payroll costs by taking advantage of federal and state tip credits, which allow them to pay waiters and other customer-facing “front of house” employees at a lower hourly rate, provided they receive a certain amount in tips. Despite the obvious financial advantage to this approach, the industry has been plagued in recent years with class and collective actions stemming from alleged tipping violations. (See examples here, here, and here.) Such claims include failing to pay minimum wage, improperly including kitchen workers in servers’ tip pools, using a portion of tips to servers of alcohol and wine to pay sommeliers’ salaries, and failing to provide required notice of the tip credit.

Furthermore, some hospitality industry experts, such as Michael Lynn of the Cornell University School of Hotel Administration, believe that tipping inherently disadvantages minority workers, suggesting that tipping practices could put employers at risk of disparate impact discrimination class action suits.

A “no tipping” policy eliminates these litigation risks. In addition to simplifying an employer’s payroll and reducing paperwork, the end of tipping could mean the end of costly class action allegations of tip pool, tip share, and service charge violations, as well as minimum wage and overtime violations predicated on an improper tip pool or share.