Many workers in Massachusetts earn the majority of their wages in tips. For this reason, Massachusetts has strong laws to ensure that tipped employees receive all of their earned tips. In other words, every dollar that a customer pays as a tip must go directly to the tipped employee. No part of a tip can go to the employer, or to a manager (including any employee with any managerial authority), supervisor, or any other non-tipped employee.

Even with these laws, we’ve seen companies charge customers delivery charges or other service fees that appear, at first glance, to be a tip, but are actually retained by the company and function as a price increase. In this way, companies can then keep their prices the same, but increase profits by adding on various charges that customers believe go directly to the employee. This is illegal in Massachusetts. If a company charges its customers any sort of fee that a customer would expect to go to an employee, the company cannot keep any portion of that fee.

In the restaurant industry, an illegal service charge looks like this: at the end of the meal, the customer receives a bill that includes a 15% service charge. The customer then declines to add a tip, assuming that the 15% service charge goes to the waitstaff. The employer, in turn, keeps the 15% service charge and the waitstaff receives no tip. Similarly, delivery drivers are cheated out of tips when the restaurant adds a “delivery fee” to the customer’s bill, but the restaurant does not pay out the delivery fee to the driver. These arrangements are illegal, and extend to other industries as well: spas, hotels, catering companies and limousine companies that include various sorts of service fees must pay the entire amount of these fees to their employees.

The Tips Act, M.G.L. c. 149 § 152A, prohibits employers from taking any portion of a tip, delivery fee, or service charge. The law defines tips and service charges broadly to include any fee or charge that a customer reasonably expects will go to the employee, and includes service charges, delivery fees, porterage fees, and setup fees, among others. The law covers waitstaff employees, service employees and service bartenders, and, again, defines each category of tipped employee broadly. Massachusetts courts have generally interpreted the Tips Act to provide as much protection as possible for employees, and to deter employers from implementing illegal tip policies.

In a recent case, Tigges v. AM Pizza, Inc., a federal court in Massachusetts added an additional protection for employees in this context. The court held that even when tipped employees are required to sign arbitration agreements and class-action waivers prior to the start of their employment, they still have the right to bring class action lawsuits challenging their employer’s compensation practices in court. In Tigges, pizza delivery drivers sued their employer for charging customers a delivery fee on all delivery orders and keeping that fee rather than paying it out to the drivers. The company charged all customers a delivery charge, ranging from $1.99 to $2.99. The drivers were tipped employees who received an hourly wage less than the minimum wage. The delivery drivers brought their case as a class action, seeking damages for all delivery drivers who had lost wages due to the employer’s policy of not paying out the delivery charge.

The company argued that the case could not go forward in court because the drivers had signed arbitration agreements that contained a class-action waiver. In other words, the drivers had signed contracts when they were hired requiring them to resolve all disputes with the company through arbitration, that is, out-of-court settlement forums, and only as individuals, not as a class action.

The court disagreed and held the contracts unenforceable. It held that a federal statute, the National Labor Relations Act (NLRA), gives employees the right to engage in collective action related to their working conditions. That right includes the right to file class action lawsuits against employers. A class action waiver, like the one the delivery drivers were required to sign, would eliminate employees’ right to collective action in violation of the NLRA. The court explained that the NLRA exists to ensure that employees have a right to band together to hold employers accountable. If employers were allowed to require employees to forfeit that right in order to gain employment, the whole purpose of the NLRA would be defeated. To that end, the court held that the class action waivers would not be enforced, and the delivery drivers could bring their claims as a class.

This case signals strong judicial protection for employees’ rights and recognition of the need for class action lawsuits. Individual employees are hesitant to sue their employers over relatively small sums of wages and risk of retaliation (despite strong anti-retaliation laws under federal and Massachusetts law). But a class action lawsuit allows employees to approach their employer as a group and enforce their wage rights while minimizing their fears of retaliation.

If you want more information about the Tips Act and service or delivery charges, feel free to contact our office for a free and confidential consultation.