Judge Rules for San Francisco Banquet Servers in $9 Million Unpaid Gratuities Case

In California, if customers reasonably understand a service fee to be a gratuity, and haven’t been informed to the contrary, servers are entitled to that full amount paid by patrons.

That’s the ruling by a California Superior Court judge in May. The judge awarded about $9 million in damages for unpaid service charges to banquet servers who worked at the Marriott Marquis hotel in San Francisco from 2012-17. During those years, the hotel distributed only 70%-72% of the service fee paid to banquet staff and retained the remainder of the tips.

California Labor Code Section 351 prohibits employers from taking any part of a gratuity left for an employee by a customer. The issue in Ordono et al v. Marriott International Inc., was that the gratuity wasn’t clearly defined on the bill. According to the San Francisco Chronicle, the hotel added a 23%-24% charge to banquet bills during 2012-17. The judge said $70 million was paid to banquet servers and the hotel kept the remaining $9 million.

The plaintiffs argued that banquet customers would have reasonably believed the charge added to their bills – described in their contracts as a service fee – was given to service staff as gratuity. The majority of customers didn’t leave tips on the table because, according to the judge, they believed gratuity was included in the service charge.

The judge wrote in his ruling that “a reasonable customer would understand and intend the service charges to be a gratuity for service staff.” He said some of the contracts drawn by hotel managers for banquet customers described the entire charge as a gratuity.

“It was common practice for employees, including banquet servers and their managers, to refer to service charges as gratuities or tip pay.” the judge said.

There is a way for companies to legally retain service fees. Starting in April 2017, according to the Chronicle, the hotel amended its contracts to say part of the service fee was a house charge that covered expenses and should not be considered a gratuity or tip. That meant the hotel could keep some of the service fees collected from customers as long as the rest was distributed to workers eligible to receive tips.

The ruling against Marriott follows a 2019 California Court of Appeals ruling in O’Grady v. Merchant Exchange Productions, which established that mandatory service charges could be found to be a gratuity, and therefore must be distributed to servers as tips. 

Part of the opinion in that case read: “The fair inference from the allegations is that the service charge is plainly perceived by the customer to be a gratuity, and is intended by the customer to be a gratuity. … An equally fair inference is that the customer would not intend a gratuity to be pocketed by defendant.”

Berman North attorneys understand all aspects of labor and employment law, and have not only defended employees who have been withheld wages, but advise and defend companies accused of wage and hour violations. If you have a question about gratuities or another employment issue, contact us today.