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Mandatory Gratuities and Administrative Changes

In 2008 when the New York Court of Appeals decided Samiento v. World Yacht and again in late 2010 shortly before the effective date of the new New York State Hospitality Wage Order, we reiterated to our clients the importance of specifying on all food and beverage contracts, menus and other documents the percentage of any mandatory charges that are distributable to the service staff as gratuities and the percentage that is retained as an administrative fee. As we noted, based on court decisions and New York State regulations, the burden is on the employer to prove that a reasonable consumer would know how much of the mandatory charge is a gratuity and how much, if any, is an administrative fee.

Recently, The United States District Court for the Southern District of New York issued a decision that causes us concern about the language included in many banquet contracts and menus regarding mandatory charges. Essentially, the Court held that for all events held after January 1, 2011 (the effective date of the New York State Hospitality Wage Order), the employer must prove by clear and convincing evidence that a charge other than for food, beverage or specified items or services is NOT A GRATUITY. If there is no language making it convincingly clear that a charge is not a gratuity, it will be presumed to be so. In that case, the employer included an 11% “surcharge” without explaining what the surcharge was for, but included a separate line on the bill for a voluntary gratuity. Approximately 75% of the patrons left a voluntary gratuity of at least 11%. The Court found that under the pre-Hospitality Wage Order standards, the employer could establish that a reasonable consumer would be adequately informed about gratuities, but that the employer had not complied with the more specific requirements of the Hospitality Wage Order, which specifies that each charge must clearly indicate that it is NOT a gratuity.

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