Gratuities form part of employee compensation for a broader range of positions and workplaces than ever before. Employers with employees who receive gratuities need to be aware that the BC Employment Standards Act (“ESA”) has specific rules regarding gratuities and the failure to comply can lead to unexpected liability. In this article, we highlight a few “tips” for any employer involved in the collection or distribution of gratuities.
Tip 1 – Gratuities are broadly defined in the ESA
The definition of “gratuities” includes the common understanding of gratuities as payments provided by customers to employees that one would reasonably expect to be kept by the employee(s). However, the definition is broader and also includes, employer imposed service charges where a reasonable person would likely infer that customers intended for the payment to be given to employees.
Tip 2 – The ESA has rules about tip pooling and distribution of tips
Employees are generally entitled to keep the gratuities they receive. The ESA does not permit employers to withhold or make deductions from employees’ gratuities, or require employees to return any portion of their gratuities to their employer. In limited circumstances an employer may be required by law or a court order to withhold tips, such as where there is a garnishment order in effect.
Having said that, employers can implement ‘tip pools’ and redistribute gratuities to other employees, such as kitchen staff who may not receive tips directly from customers.
Although tip pooling is permitted, there are limits on who can participate and share in the distribution of tips. The ESA requires that individuals receiving redistributed gratuities actually are “employees” as that term is used in the ESA. A director or shareholder of a corporate employer, or an individual employer (such as a sole proprietor or partner in a business) can share in the tips only where they work in the business performing the same type of work as those employees who receive tips or share in the tip pool.
Tip 3 – Non-compliance with the ESA can lead to liability for employers
Although gratuities are not considered “wages” under the ESA, the ESA provides a mechanism for employees to recover gratuities that have been unlawfully withheld by their employer in the same manner as a claim for unpaid wages.
As one recent example, in Star Limousine Service Ltd. (Re), 2024 BCEST 67 (application for reconsideration dismissed in Star Limousine Service Ltd. (Re), 2024 BCEST 105), the Employment Standards Tribunal confirmed an Employment Standards Branch decision that awarded employees $71,799.60 (not including interest) after the employer unlawfully withheld gratuities from 23 limousine drivers in a manner that was contrary to the ESA.
If employers have any questions about this article, please contact your Harris lawyer.
