It’s holiday season, and that means it’s time for fancy holiday parties. Do you ever wonder, when you’re filling your glass with eggnog or taking another mini crab cake from the hors d’oeuvres tray at your office shindig, how all those servers are getting paid? After all, they aren’t tipped like restaurant servers are. Would it surprise you to learn that they earn commissions? Well, according to a recent case from the Eastern District of Pennsylvania, some Philadelphia banquet severs do.
Waiting on Pay
Nancy Livi, who had worked as a banquet server for the swanky Hyatt at the Bellevue hotel in Philadelphia since 1986, brought the lawsuit for violations of various Pennsylvania wage laws. Livi claimed that she and other banquet servers for the hotel worked overtime without being paid time and a half. She also said that while the hotel didn’t permit tip collecting during events, it kept part of the 21 percent service fee it charged clients on food and beverage costs, instead of paying it all out to the servers.
According to the district court, Hyatt did nothing wrong. There’s an exemption under the Pennsylvania overtime law for retail and service employees who both earn a base rate of more than one and half times the minimum wage and receive more than half their income from commissions. Livi’s $11.57 hourly wages met the regular rate element, and the portion she received from the service charge distribution made up more than half her income, so the only question remaining was whether the service charge was a “commission.”
The district court found that the distributions from the service charges did qualify as “commissions” because the service charges weren’t discretionary or negotiable, like tips are – every banquet contract included the mandatory 21 percent charge. This made sense in the case of banquet servers, the court said, because they work irregular hours. They may be working every weekend during wedding and holiday season, for example, but have little work for several weeks in between. According to the court, paying them a premium overtime rate would be inconsistent with the purpose of overtime laws, since workers like banquet servers could earn far more in overtime with fewer working hours than employees who have regular schedules.
The hotel’s retention of six percent of the service charge didn’t violate the law, either, the court found. Without even reaching the issue of whether or not the service charge was a tip, the court found that the law prohibiting employers from retaining tips didn’t apply to the hotel in the first place. That law only covers situations where the employer uses an employee’s tips to make up part of the minimum wage, and the hotel didn’t use the service charge to make up her hourly rate.
A Final Course
The district court’s opinion raises some interesting questions. Could restaurants that charge a mandatory gratuity as a percentage of the bill treat servers who make more than one and half times minimum wage as commission-earners? If servers don’t reach the regular wage element for the commission exemption, does the argument that their irregular schedule justifies the exemption still hold up? Now that’s some food for thought.
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