By now, the impact of the New York State Court of Appeals' decision in Samiento v. World Yacht Inc., 10 N.Y.3d 70 (2008), is well-known throughout the hospitality industry. Conscientious venues have reviewed, and when necessary, modified their banquet or private event contracts to clarify and explain that mandatory charges in addition to the food and beverage costs are not gratuities. Part of this internal review usually involved eliminating the term "service charge" particularly since the 2011 Hospitality Industry Wage Order explicitly stated that "[t]here shall be a rebuttable presumption that any charge in addition to charges for food, beverage . . . including but not limited to any charge for "service" or "food service" is a charge purported to be a gratuity." 

On August 21, 2013, Carmine Ruberto, the New York State Department of Labor's (DOL) Director of Labor Standards, issued a memorandum to all of the DOL's Labor Standards staff clarifying how investigators should audit "possible tip appropriation at facilities which provide banquets or special events." These DOL guidelines provide that investigators must apply two different standards based on the timing of the banquet or special event.  With respect to banquets which occurred after the implementation of the Wage Order for the Hospitality Industry (Wage Order) on January 1, 2011, investigators are required to examine whether the employer provided a notice that would make the reasonable customer understand that "the charge [was] for administration [and] was not a tip for employees." Mr. Ruberto further explained that the notification should be provided on a contract, menu, price list and bill that clearly states in plain language and in 12-point font that the administrative charge is not a tip and will not be distributed to employees.

For events that occurred prior to the 2011 implementation of the Wage Order the DOL states - contrary to several judicial opinions - that use of the term service charge may not, in and of itself, create a presumption that a reasonable customer would understand the charge to be a gratuity.  Indeed, Mr. Ruberto directed DOL staff to examine the "totality of the circumstances" and to request additional information from the venue such as other written documents like contracts, price listing, bills and menus to see if they contain any clarifying language explaining what the service charge purportedly covers. Mr. Ruberto also directed DOL staff to examine credit card slips to see if customers left tips in excess of the service charge. Mr. Ruberto explained that such evidence would reflect a customer's "understanding" that the service charge was not intended to be a gratuity for the employees. DOL staff are also instructed to ask employers what the service charge covered (such as tent rentals, linen laundering, insurance, etc.). Investigators are also expected to determine whether the employer declared the service charge as income and paid taxes on the service charge; if it did so then it would weigh against finding the charge at issue to be a gratuity. Finally, Mr. Ruberto instructed investigators to conduct employee interviews to determine what staff told customers about the service charge. 

Mr. Ruberto's internal memorandum demonstrates that employers should still take steps to ensure that their current banquet and private contracts comply with the Wage Order and contain adequate explanations of all charges. Indeed, such explanations should be written in clear language and be written in 12-point font. With respect to events that occurred prior to 2011, it is refreshing that the DOL has finally recognized that many guests understand that service charges are not necessarily gratuities. Employers facing lawsuits or DOL investigations based on these pre-2011 events can now use this internal memorandum as a legal basis to defend their practices particularly, provided the employer properly paid taxes on the service charge.

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