Hawaii wages did not include tip income

A hotel that used portions of service charges to pay employees’ wages violated Hawaii law because it did not use 100 percent of those service charges to pay tips, the Supreme Court of Hawaii held. A look at the law’s legislative history revealed that wages were not included in the definition of “tip income.” Various customers contended that the hotel had violated Hawaii Revised Statutes Sec. 481B-14 by improperly using portions of the service charges that had been levied on purchases of food and beverages without informing them–an unfair or deceptive act or practice in the conduct of trade or commerce and/or an unfair method of competition.

Questionable tip distribution. The hotel levied a 19-percent service charge on food and beverages bought for a wedding reception. While 85 percent of that money went toward paying tips for the hotel employees who actually served the food and beverages, the hotel kept the remaining 15 percent as “management’s share.” This portion was later reclassified and distributed to pay wages for various hotel employees. The wedding groom contended that, had he known that the employees who worked his reception were not going to receive 100 percent of the service charge as tips, he would have tipped them differently. He sued the hotel on behalf of himself and other similarly situated customers, alleging that it violated Hawaii law by failing to distribute the service charges directly to its employees as tip income and by failing to disclose this information to its customers. The court granted summary judgment to the customers concerning their interpretation of Hawaii law, holding that HRS Sec. 481B-14 required the hotel to either distribute the service charge to employees as tip income or, if it was being distributed in some other way, to inform the customers as to how it was being used. The state’s intermediate court disagreed and reversed the circuit court’s decision. The customers appealed to the state supreme court.

“Tip income.” HRS Sec. 481B-14 requires hotels to either pay the entirety of the service charges to hotel employees as “tip income” or, if they do anything else with those funds, to inform the customers accordingly. The hotel admitted that it had not fully informed the customers as to how it used the money. It pointed out, however, that the Hawaii legislature had equated “tip income” with “wages and tips” elsewhere in the original bill, suggesting that “wages” were included within the statutory definition of “tip income.” Therefore, the hotel argued, it had not violated HRS Sec. 481B-14 by withholding information concerning how it had distributed the service charges. Unfortunately for the hotel, the bill’s legislative history indicated that this interpretation was incorrect. During its final House referral, the House Finance Committee amended the bill to clarify that hotels had to distribute service charges “directly” to employees as “tip income.” This language was added after the legislature inserted the phrase “wages and tips” into the bill, and indicated that “wages and tips” specifically meant tip income. Also, the Senate Standing Committee Report explained that the purpose of the bill was to meet consumer expectations that service charges were levied in lieu of voluntary gratuities, and to ensure that those consumers would be informed if the charges were being used in any other way.

Decision reversed. In deciding that “wages and tips” and “tip income” were synonymous, the intermediate court relied on Villon v. Marriott Hotel Services, Inc. However, the court in that case only decided that the term “wages” included tips or gratuities for purposes of enforcing a different Hawaii statute dealing with wage payment. It did not decide that the term “tip income” included wages for purpose of disclosure under HRS Sec. 481B-14. Here, the hotel retained portions of service charges and used them to pay wages for various hotel employees instead of giving them as tip income to the employees who provided services directly to those customers. It did not let the customers know this information. This deprived the banquet workers of extra income, misled customers into believing that the workers were being rewarded for good service, and violated the plain language of the statute. Accordingly, the state high court vacated the judgment below. (Kawakami v. Kahala Hotel Investors, LLC, December 22, 2014,No. SCWC-11-0000594.)

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