lightning.jpgCo-authored by Jeremy W. Stewart and Ariel Cudkowicz

Hotel and restaurant operators in the State of Hawaii have recently found their service charge practices subject to waves of challenges brought pursuant to H.R.S. § 481B-14 (the “Tip Statute”). The Hawaii Tip Statute is, in essence, a consumer protection statute that requires an employer to pay employee the entire service charge collected from customers as “tip income,” if the employer fails to notify customers that a portion of the service charge will be retained by the employer for administrative and other costs. The Tip Statute challenges have sought to recover this allegedly owed “tip income” by, among other things, alleging that it constitutes unpaid wages under H.R.S. §§ 388-6, 388-10, and 388-11 (“Hawaii’s Wage Laws”).

A recent decision by United States District Court for the District of Hawaii against Four Seasons, discussed in a September 9, 2011 blog entry, found that a Tip Statute action could be enforced via Hawaii’s Wage Laws. The Four Seasons decision was considered a significant blow to hotel and restaurant operators on this issue. However, another judge in Hawaii’s District Court recently issued an opinion that may breathe new life back into the defense that the legislature did not intend the Tip Statute to be enforced through Hawaii’s Wage Laws.

District Court Judge Leslie E. Kobayashi presides over a Tip Statute case involving the Wailea Marriott Resort (“Marriott”), one of a dozen resorts facing Tip Statute challenges. In the Marriott case, Judge Kobayashi elected not to issue a final determination on Plaintiffs Motion for Partial Summary Judgment or on Marriott’s Motion to Dismiss Plaintiffs’ Amended Complaint. Instead, Judge Kobayashi issued a lengthy opinion explaining the many reasons why she does not believe the Tip Statute can be enforced through Hawaii’s Wage Laws. Judge Kobayashi expressly acknowledged that her opinion was in direct disagreement with the decisions of her colleagues on the federal bench, including the Four Seasons decision, and a decision by a state court judge on this issue, each of whom have found that the Tip Statute can be enforced through Hawaii’s Wage Laws. Rather than issue her decision in the Marriott case, Judge Kobayashi elected to defer final ruling and seek guidance from Hawaii’s Supreme Court.

In her opinion, Judge Kobayashi’s conducts a thorough analysis of the Tip Statute, a review of the Legislative history of the statute, and explains that the Tip Statute, a consumer protection law, and Hawaii’s wage laws, have completely different purposes. Consequently, enforcing the Tip Statute through Hawaii’s Wage Laws, rather than through the mechanisms provided for violations of consumer protection laws, would be contrary to legislative intent. Judge Kobayashi also discusses ambiguities in the law that necessitate a need to look past the plain language of the statutes, to the legislative history. For instance, the phrase “tip income” is found only in the Tip Statute, and while “tips” are considered wages under H.R.S. § 388-6 (prohibits employers from retaining “compensation earned”), “tips” are not considered wages under the enforcement provisions of Hawaii’s Wage Laws – H.R.S. § 388-10 (penalties for violating wage laws) or § 388-11 (independent action to recover unpaid wages). In essence, the enforcement mechanisms under Hawaii’s Wage Laws cannot be used to seek what is not considered wages under those provisions. Judge Kobayashi acknowledged that she was sympathetic to employees because a claim under Hawaii’s consumer protection laws may be “virtually impossible” to prove, however, despite her sympathy, she stated quite clearly that “it is not the Court’s place to create a remedy that the Legislature did not provide for.”

Following her order in Marriott, Judge Kobayashi turned her attention to a nearly identical Tip Statute case involving Starwood Hotels & Resorts Worldwide, Inc. (“Starwood”). The Starwood case was reassigned to Judge Kobayahsi after her predecessor issued an opinion holding that plaintiffs could not enforce the Tip Statute through the mechanisms of the consumer protection laws, but could proceed with their claim under Hawaii’s Wage Laws. Although the previous order was the “law of the case,” Judge Kobayashi held that her Marriott decision constituted changed circumstances, which necessitate deviating from the court’s previous order. In her opinion, it would be “manifestly unjust” to allow the plaintiffs in Starwood to proceed with their Tip Statute claims under Hawaii’s Wage Laws, when the court has issued a simultaneous opinion that it believes such a claim is not viable. The Court administratively closed the Starwood case and granted Starwood’s motion to certify the question of “whether food and beverage service employees can enforce alleged violations of § 481B-14 through §§388-6, 388-10, and 388-11.”

The parties to the Marriott and Starwood cases have been invited to comment on precise language of the questions to be certified to the Hawaii Supreme Court.