BUSINESS

How The Boss May Be Quietly Pocketing Your Server's Tips

02/16/2015 10:09 am ET | Updated Feb 17, 2015
Frederick Bass via Getty Images

Laurie Zabawa says she'd been working at a Hilton Garden Inn in Bozeman, Montana, for seven years when the owners outsourced the management of the hotel in 2012. For Zabawa, the hotel's banquet manager, this meant that any parties that took place in the hotel would now be overseen by an outside firm, an Ohio-based company called Gateway Hospitality Group.

The banquet workers whom Zabawa oversaw weren't being let go, so the service-industry lifer says she took the change in stride -- that is, until Gateway explained the new policy on gratuities.

By tradition, when clients of the hotel ran up banquet tabs, they'd be subject to an automatic gratuity of 18 to 20 percent. That money was then distributed among the waiters, bartenders and other food workers who handled the event, according to Zabawa. For workers earning close to minimum wage, these tips could equal half their base pay, and they were essential to making a living.

But according to Zabawa and a lawsuit she's filed in Montana state court, after Gateway took over, the automatic gratuity was renamed a "service" or "setup" fee, and the house stopped distributing that money to staff. Zabawa claims that workers were told to sign papers accepting a new flat wage that didn't include gratuities. Most workers were given a nominal raise of about $1 per hour, but it didn't come close to making up for the lost tips, she says.

As banquet manager, Zabawa says she was tasked with implementing the new policy.

"It was awful," Zabawa, 50, told The Huffington Post. "Just imagine working there with those people for years. They were my family. It was horrible to go through, and I had no options."

Zabawa claims she was pressured to quit her job after telling management she believed the new policy violated Montana wage laws. She is suing over what she deems wrongful termination, and she's asked the court to declare the hotel's use of service fees illegal.

Hilton and the hotel's operator, Bozeman Lodging Investors, did not respond to requests for comment about Zabawa's allegations. Bob Voelker, Gateway's CEO and a Hilton veteran, told HuffPost he would not comment on ongoing litigation. According to the company's website, Gateway has contracts with at least 17 Hilton-brand properties in four states.

In the service industry, it's become fairly common for the house to present customers with a charge that's implied to be a tip for the workers -- only to turn around and keep that money for itself. Such add-on costs often come in the guise of a "service" fee, and the charge tends to match what most of us would associate with a typical gratuity.

For businesses, these fees often function as a surreptitious price increase, allowing them to charge customers more while maintaining the same base price. Though these fees don't go to workers, people like Zabawa believe their presence makes customers assume that the bartenders, servers and others who rely on tips have somehow been covered.

"I had employees who quit," Zabawa said. "They just weren't willing to work there anymore."

Zabawa's employees weren't the only workers feeling burned by such fees. In 2010, catering employees who worked the U.S. Open at Arthur Ashe Stadium in New York sued the concessions company there for allegedly pocketing a 21 percent service fee that was tacked onto customers' bills. The workers, who also claimed they were shorted on overtime pay, argued that the service fee was portrayed as a gratuity. The class-action lawsuit was settled in 2013 for $600,000.

As HuffPost reported in 2011, beer and hot dog vendors at New York's Yankee Stadium claimed they were victims of a similar scheme. The stadium's concessionaire, Legends Hospitality, was attaching a 20 percent service fee to the drink and food orders in the stadium's luxury boxes, but the vendors who sold those orders were only taking in 4 to 6 percent in commission. According to a lawsuit filed by the vendors, the remainder of that 20 percent fee was going to Legends, which, at the time, was jointly owned by the New York Yankees, the Dallas Cowboys and the investment bank Goldman Sachs. (After it was sued, Legends made clear on its menus that only a small portion of the fee went to servers.)

The practice has even made its way into the pizza delivery business. As HuffPost reported last year, Pizza Hut, Papa John's and Domino's now commonly tack nominal "delivery fees" onto the tabs of delivery orders. Those fees, which are usually between $1.50 and $3 a pop, do not go to the drivers, even though many customers forego a driver tip believing that they do. Many career drivers told HuffPost they believe the practice has helped depress wages in their field.

HuffPost readers: Do you work in a job where "service fees" do not go to workers? Tell us about it.

One former catering worker at the U.S. Open said the use of service fees not only hurts workers' paychecks, but also creates confusion and tension among clients.

"In this industry, it happens a lot. A client will have the assumption that the service fee is indicative of some type of gratuity going to the employee," said the worker, who asked to remain anonymous due to the litigation. "They're feeling that they're already being forced to pay a tip. A strange sort of animosity can build up between the client and the server."

Several states have recognized the problems stemming from service fees and tried to address them in their own ways, with laws now on the books in Hawaii, Massachusetts, Minnesota, Montana, New York and Washington state.

In Hawaii, any hotel or restaurant that tacks on a service fee is required to distribute that fee in full to employees. A similar statute in Massachusetts applies the same rule to the service industry at large, while also barring management from sharing in employee tip pools. In Washington state, service fees may be used, but receipts must show clearly how much of the fee goes to employees.

Recently, the hotel workers' union Unite Here has worked to insert language into local wage laws to ensure that service fees stay with workers. According to the minimum wage ordinance passed last year in Los Angeles, which established a $15 wage floor for large hotels in the city, any such fee belongs to the workforce, regardless of what management chooses to call it -- be it a "service charge," a "delivery charge" or a "porterage" fee, to name a few examples.

The Montana law, which would cover Zabawa's hotel, defines a service fee as "an arbitrary fixed charge added to the customer's bill by an employer in lieu of a tip." According to state code, such a fee "must be distributed directly to the nonmanagement employee preparing or serving the food or beverage or to any other employee involved in related services."

"Defendants admit they do not provide the 20% arbitrary fee to the nonmanagement staff members," Zabawa's lawyer, Jason Armstrong, wrote in a court filing, referring to Gateway and Bozeman Lodging Investors. "The question then becomes one of law; is the policy legal or not under the law?"

According to Zabawa, the hotel lost many of its servers under the new gratuity policy, since for them it effectively translated to a pay cut. Zabawa said she was simply instructed to hire new employees.

After workers lost their tips, one of the servers brought the language of the Montana statute to Zabawa, she claims in her lawsuit. Zabawa, in turn, took the server's concerns to a manager for Gateway. Zabawa alleges in her suit that she was then instructed to "write up" the "problem employee" and fire her. Zabawa says she refused.

Zabawa says she then lost her position as banquet manager and was switched to a sales job. In her lawsuit, she argues that leaving "was the only reasonable alternative" at that point. Under Montana law, such a voluntary termination could still be considered wrongful discharge if the employer created an intolerable situation.

After eight years at the hotel, Zabawa wound up working part-time at Pier 1 Imports before finding a new job in banquet work. Her income has taken a sharp drop, she says, but that's something she's managed to live with.

"I go to sleep at night knowing that I'm not apologizing [to my employees] and that I'm not sorry every day," she said.

Suggest a correction
Comments

CONVERSATIONS