A class-action lawsuit over service charges raises red flags and questions for HR in the hospitality industry. Despite uncharted, untested legal grounds, attorneys expect a slew of new cases to be filed, even in states where there are no legal or regulatory guidelines on the issue.
A lawsuit filed against the food-service and event-management companies working at the U.S. Open tennis tournament is likely a harbinger of more just like it to come, say lawyers on both sides of the argument.
It also should serve as a warning, they say, to HR leaders in hotel, banquet-hall and event-planning organizations to get their bookkeeping practices in order so they don't become the next easy target for litigation.
The class-action lawsuit, Yahraes et al. vs. Restaurant Associates Events Corp. et al, was filed March 3 in the U.S. District Court for the Eastern District of New York on behalf of suite attendants who worked at the tournament -- in the Arthur Ashe Stadium within the Billie Jean King National Tennis Center -- from 2004 through 2009.
The attendants claim the defendants -- New York-based Restaurant Associates, Amerivents and JKDella Sales Dimensions Inc., and Chicago-based Levy Restaurants Inc. -- broke federal and state wage-and-hour laws by failing to pay them overtime.
The lawsuit also claims the companies broke a separate New York labor law by keeping gratuities of 21-percent service charges that should have gone to the servers.
It's the latter charge, lawyers say, that should raise a red flag for employers because the law is still so new, and lawsuits based on it have the potential for catching many establishments off-guard.
That labor law, as interpreted by New York's highest court in 2008, in Samiento vs. World Yacht Inc., states that all so-labeled service fees and service charges should go to those people who serve, not the establishments where they serve.
Though she didn't reveal the total amount of what is being sought in back wages, service charges and injunctive release in the U.S. Open suit, Judith L. Spanier, a partner at Abbey Spanier Rodd & Abrams in New York and an attorney for the plaintiffs, says it would be reflective of the amount spent at an event of this stature.
"When you think that some $80,000 is probably made over the course of each two-week U.S. Open," Spanier says, "and 15 percent of that [in her estimation, the lowest fair-tip percentage] comes to $16,000, that's a whole lot of money that the establishment is pocketing that isn't going to the employees.
"While labor-law violations are nothing new," she says, "this particular case shines a bright light on how even the workers who are hand-picked to serve at a high-class event can be unfairly treated by perceived veterans in the catering industry."
Certainly, because of this service-charge law in New York, says Spanier, "you're going to see more and more people making claims based upon it."
A Levy Restaurants spokesperson says her company had not yet been officially served with the lawsuit and wouldn't comment on pending litigation anyway. Nevertheless, she says, "we take any such allegations seriously and we are reviewing the issues we have before us now." Calls to Restaurant Associates were not returned.
So far, besides New York's law, the only other statute specifically addressing banquet or event servers' rights to service charges was passed -- in the form of an amendment -- in Massachusetts in 2004.
Like New York, it also mandates that anything called a service charge should go to the server. It also specifies that charges and fees can go anywhere an establishment chooses so long as they are properly and transparently identified in an invoice or statement -- i.e., "administrative" or "maintenance."
One other similar case is pending in the Hawaii Supreme Court. It centers around whether service-charge arguments constitute wage-and-hour cases or consumer-protection cases, in which case such employee arguments would have no standing. Currently, the federal law governing this issue states that the service charge belongs to the hotel or entertainment facility.
Despite this uncharted, untested territory for pursuing service-charge cases, expect a slew of new cases to be filed, even in states where there is no case law established, says Paul E. Wagner, a shareholder with Stokes Roberts & Wagner in Ithaca, N.Y., and an adjunct professor of law at the Cornell University School of Hotel Administration, also in Ithaca.
"Look for all kinds of cases to be filed in Chicago, and in states like California and Florida, where there are a lot of banquet halls and hotels," Wagner says.
Attorneys will be watching "these law firms making so much money on these New York and Massachusetts cases, and will use more of a fairness argument and more of a consumer-protection argument -- in that the consumer is misled [by service charges they think are going to their servers when, in fact, they are going to the establishment], thereby essentially interfering with the relationship between the consumer and the banquet server."
The irony of the U.S. Open case and others like it, Wagner says, is that banquet servers -- which the tournament suite attendants essentially are -- "have historically been some of the most highly compensated hotel, event and banquet staff in existence," thanks to their long-standing union power base.
"In some cases, senior banquet waiters are paid even more than some managers," he says. "Trust me, there's no wrong that's being righted here. To say these lawsuits are championing the rights of the worker is dead wrong. Some of these people are making $40 and $50 an hour. These are not the downtrodden."
Even more ironic, says Wagner, "is that the remedy [to any potential litigation] is so easy."
"Here's the bottom line for HR professionals," he says. "If we as caterers, event sponsors, hotels, etc., are simply transparent and call the charge something that is consistent with where it's going [such as writing administrative charge instead of service charge], then none of these lawsuits will touch us."
Service establishments would do well to "put this on the radar screen" and start "making these [bookkeeping] changes before it's too late."