Co-Authored by Ariel Cudkowicz and Kevin Young 

As we reported earlier this summer, the hospitality industry has, in recent years, attracted the attention of various plaintiffs’ attorneys who have attacked, on behalf of service employees, practices related to levying service charges on food and beverage purchases.  While several recent decisions have stemmed the tide of such cases, threats remain in those states that statutorily proscribe certain service-charge practices.  This threat came to bear late last month, when Hawaii’s federal district court granted partial summary judgment to a group of hotel banquet servers who asserted that their employer violated Hawaii law by charging, and retaining some portion of, an 18-to-22 percent service charge on food and beverage purchases. 

The six named plaintiffs—who worked as banquet servers at the Four Seasons Resort Maui and the Four Seasons Resort Hualalai—brought the case as a Rule 23 class action in November 2008.  They asserted five causes of action against the defendant, Four Seasons Hotel Limited (“Four Seasons”), pertaining to the disputed charges, including an unfair competition claim, two contract-related claims, an unjust enrichment claim, and a claim under Hawaii’s wage-withholding statute, the violation of which entitles an employee to double the unpaid wages.

The plaintiffs moved for summary judgment with respect to their claim under the wage-withholding statute, Hawaii Revised Statute § 388-6.  Section 388-6 prohibits employers from deducting or retaining “any part or portion of any compensation earned by any employee except where required by [law].”  The plaintiffs argued that the Four Seasons’ service-charge practice violated this law, namely when read in conjunction with Hawaii Revised Statute § 481B-14.  Section 481B-14 is part of Hawaii’s Unfair and Deceptive Practices Act and requires hotels and restaurants to distribute food and beverage service charges “directly to . . . employees as tip income or clearly disclose to the [customer]” that the charge is not being used for wages and tips.

One of the Four Seasons’ primary objections was that Section 481B-14 was intended to protect consumers, not service employees.  Thus, the hotel argued, after pointing to various legislative history, the law does not, and was not meant to, create a claim for service employees under Section 388-6.  The Four Seasons further asserted that Section 388-6 only applied to tips, and that in the hotel industry tips are entirely distinct from service charges.   The court rejected these arguments, finding that the two statutes could and should be read in harmony, with Section 481B-14 requiring hotels and restaurants to pay service charges to employees as “tip income,” and Section 388-6 providing a cause of action for withholding wages, including “tip income.”

Over these and various other objections, the court agreed with the plaintiffs that there was no genuine issue of material fact for trial: the Four Seasons employed the plaintiffs as food and beverage servers, it retained portions of food and beverage service charges, and, primarily before August 2006, it did not clearly disclose, to at least some customers, that a portion of the charge was not distributed to the plaintiffs

This decision is consistent with a number of other decisions in Hawaii dealing with the hotel industry practice of charging and distributing service charges for banquet events.  The result is instructive for other hospitality-industry employers in Hawaii, and even for those outside the state.  In either setting, it remains critically important for employers in the industry to be cognizant of service-charge rules in the states in which they operate and, moreover, to communicate with their customers as clearly and consistently as possible about the purpose of mandatory charges, including, for instance, through language on event orders, menus, receipts, service agreements, posted policies, and any other written statements concerning such charges.