Canadian Employment Law Today

CANADIAN EMPLOYMENT LAW TODAY What does your tip-out policy say about you? Tipping out may get around rules prohibiting deduction of wages but may still lead to employer liability | BY SHANA FRENCH AND YASMIN ASKARI | Whether or not their perception is accurate, a "no dipping into tipping" movement is gaining ground across Canada and the United States, carrying with it the winds of additional legislative change. "TIPPING out" — the pooling and sharing of a portion of gratuities — is a common practice among restaurants and bars. Calculated either as a perThe law centage of tips received by a server or of overall corporate sales for a period Most jurisdictions have some form of time, pooled gratuities have tradi- of employment standards legislation. tionally been shared In Ontario, that legislaamong servers, bussers, tion is the ESA, which EMPLOYMENT chefs and other restausets out rights of employSTANDARDS rant staff. Increasingly, ees and requirements however, the "house"' (the restaurant applicable to employers in most or bar itself) has begun to take piece of Ontario workplaces. One such requirethe action, ostensibly to recuperate for ment is a prohibition on an employer breakage costs or monetary errors. deducting wages as a means of recuSeemingly benign — what could be perating breakage costs or monetary wrong with sharing among colleagues errors. The term "wages," however, — tipping out has already been banned does not include gratuities. As a result, in New Brunswick, Prince Edward "tipping out the house" has been and Island, and New York. In addition, for remains an unregulated protocol the third time, a well-known member which appears to allow employers to of the Ontario Legislature has intro- do indirectly what they are forbidden duced a private member's bill — sup- to do directly. ported by the Province's Minister of The ESA also stipulates minimum Labour — that would amend the wage standards. If the process of tipprovince's Employment Standards Act ping out — whether or not the house (ESA) making it illegal for an employer participates — results in an employee's to take any portion of an employee's wages dropping below minimum wage, tips or other gratuities. this can result in liability for the The criticism of tipping out is essen- employer, not to mention unfairness to tially two-fold: perceived unfairness, the employee. and the law. As well, if the house retains a portion of gratuities, there may be issues Perceived unfairness with the applicable revenue enforceIn an industry (restaurant and bar) ment agency if the gratuities are not where staff salaries are intentionally properly tracked and reported for tax kept low on the assumption gratuities purposes. Particularly, as gratuities can and will make up the difference, are increasingly paid through credit asking staff to share their pooled gra- and debit transactions, their collection tuities with the house has raised the can be readily tracked in the event of ire of worker advocates across North an audit. America, who see this protocol as Tips for employers unreasonable and an abuse of the employer-employee relationship. If tipping out is a workplace proto- col your business has adopted, or would like to adopt, appreciate there may be implications, both legal and in the court of public opinion. At the very least consider the following: • Do the employment standards of your jurisdiction address tipping out — directly or indirectly — and, if so, what is permitted and what is not? • Does your organization's tipping out protocol have the potential to violate applicable minimum wage standards? If so, consider ways to proactively correct this. • Even if tipping out is permitted in your jurisdiction, consider the potential cost to your business of negative publicity should your organization's tipping out protocol become the focus of public scrutiny. • If your organization participates in a share of tipping out, conduct an internal review of your gratuity tracking systems to ensure best practices for tax compliance. CELT ABOUT THE AUTHORS Shana French and Yasmin Askari Shana French and Yasmin Askari are lawyers with Sherrard Kuzz LLP, a management-side employment and labour law firm in Toronto. They can be reached at (416) 603-0700 (main), (416) 420-0738 (24 hour) or by visiting www.sherrardkuzz.com. Published by Canadian HR Reporter, a Thomson Reuters business 2013 3

• Cover