The New York State Appellate Division, Third Department, recently reaffirmed the proposition that under New York law employees with meaningful managerial authority cannot participate in a tip pool. See Marzovilla v. New York State Industrial Board of Appeals, 2015 WL 1724727 (3rd Dept., April 16, 2015). In this action, several service members complained that a New York Italian restaurant, iTrulli, violated New York Labor Law Section 196-d by distributing shares of the tip pool to the “head waiter” and the “wine steward,” who the service members alleged were managers. New York Labor Law Section 196-d provides that “[n]o employer or his [or her] agent … shall demand or accept, directly or indirectly, any part of the gratuities, received by an employee, or retain any part of a gratuity or of any charge purported to be a gratuity for an employee … Nothing in this subdivision shall be construed as affecting … the sharing of tips by a waiter with a busboy or similar employee.” The New York State Department of Labor (DOL) agreed with the service members that the head waiter and wine steward were managers. As such, the DOL ruled that the tip pool violated Section 196-d and assessed a charge of $407,000, which included the disgorgement of the misappropriated tips, interest, and a civil penalty. Following a hearing, the New York State Industrial Board of Appeals (IBA) modified the amount of civil penalties and otherwise affirmed the DOL’s ruling. Nicola Marzovilla, the owner of the restaurant, thereafter initiated an Article 78 in the New York Appellate Division, Third Department to review the DOL’s ruling as modified by the IBA.
In reviewing this matter, the Third Department specifically considered Barenboim v Starbucks Corp., 21 N.Y.3d 460 (2013), a recent determination by the New York Court of Appeals. In Barenboim, the Court of Appeals addressed Section 196-d and held that the eligibility of certain employees to participate in a tip pool “shall be based upon duties and not titles.” Id. at 471. The Barenboim Court explained that “employer-mandated tip splitting should be limited to employees who, like waiters and busboys, are ordinarily engaged in personal customer service, a rule that comports with the ‘expectation[s] of the reasonable customer’” Id. at 471-72 (quoting, Samiento v. World Yacht Inc., 10 N.Y.3d 70, 79 (2008)). Barenboim recognized the long standing DOL policy that “employees who regularly provide direct service to patrons remain tip-pool eligible even if they exercise a limited degree of supervisory responsibility.” Id. at 472. However, as the Barenboim Court warned, “there comes a point at which the degree of managerial responsibility becomes so substantial that the individual can no longer fairly be characterized as an employee similar to general wait staff within the meaning of Labor Law § 196-d.” Id. On this issue, the Barenboim Court explained that “[m]eaningful authority might include the ability to discipline subordinates, assist in performance evaluations or participate in the process of hiring or terminating employees, as well as having input in the creation of employees work schedules, thereby directly influencing the number and timing of hours worked by staff as well as their compensation.” Id.
The Court in Marzovilla was confronted with the issue of when an employee’s supervisory authority becomes significant enough to impact that individual’s eligibility to participate in a tip pool with non-supervisory employees. In Marzovilla several servers testified that the head waiter sometimes told them that they had to give him a full share of the tip pool when a large amount of money had been collected. Moreover, when the head waiter served customers and received personal tips, those tips were not shared with any other waiters. This testimony was credited by the IBA and the Third Department found that this evidence was sufficient under Barenboim to establish “meaningful authority because it established that [the head waiter] ‘directly influenced the compensation received by other waiters’ …” 2015 WL 1724727 at *2 (quoting, Barenboim, 21 N.Y.3d at 473). The Marzovilla court further noted that several servers testified that the head waiter was a “manager” who “gave orders, supervised and instructed them while they were working.” Two servers also testified that the head waiter introduced himself as a manager. In addition, the serves claimed that the head waiter “participated in the process of hiring employees and had input in the creation of employee work schedules.” Although the witnesses confirmed that the head waiter was required to check with Marzovilla to see if jobs were open before interviewing a potential employee, the Marzovilla court observed that “final authority” is not the standard, and “the power to hire and fire is not the exclusive test.” Id. (quoting, Barenboim, 21 N.Y.3d at 473). Accordingly, the Marzovilla court confirmed the determination of the IBA that the head waiter’s managerial authority precluded his participation in the tip pool.
The Marzovilla court next considered the duties of the wine steward. Initially, both the IBA and the Third Department noted that the wine steward’s own description of his duties revealed that much of his work involved initially programing and maintaining, then improving, the restaurant’s computer system as well as maintaining and updating the restaurant’s massive wine cellar. The IBA further credited the testimony of servers that the wine steward was rarely on the floor during lunch shifts, and during dinner shifts, his service duties were limited as he sometimes discussed wine with customers, but rarely opened and poured wine unless the bottle was expensive or the customer was high-profile or a regular. Accordingly, the Marzovilla court found that there was substantial evidence to support the IBA determination that the wine steward’s service duties were occasional or incidental to his functions at the restaurant, and thus, he was not a food service worker “whose personal service to patrons [was] a principal or regular part of his … duties.” Id. As such, the wine steward was not permitted to participate in a tip pool with food service workers, such as servers.
The Marzovilla case serves an important reminder that when employees either have meaningful managerial authority, such as the head waiter at issue, or have minimal personal service to patrons, such as the wine steward at issue, then under New York law such employees may not participate in a mandatory tip pool with non-managerial, food service workers employees. While an employee can have some limited supervisory authority and still participate in the tip pool, meaningful managerial authority – such as making decisions that impact an employee’s compensation and/or having input into hiring/firing – will necessarily preclude participation in the tip pool.