BY ANA KRALJEVIC, LAWYER, WISE LAW OFFICE
In many workplaces in the service sector, tips are pooled together and, at the end of a shift, divided up among the workers on duty during that shift. It is common practice for the employer to take a portion of the tip money in a practice known as “tipping-out,” wherein the employees are forced to pay a fixed portion of their tips to the managers and owners. The oft-cited justification is usually to recoup the losses that should be absorbed by the employer anyway such as the cost of broken dishes or worn-out equipment.
In many workplaces in the service sector, tips are pooled together and, at the end of a shift, divided up among the workers on duty during that shift. It is common practice for the employer to take a portion of the tip money in a practice known as “tipping-out,” wherein the employees are forced to pay a fixed portion of their tips to the managers and owners. The oft-cited justification is usually to recoup the losses that should be absorbed by the employer anyway such as the cost of broken dishes or worn-out equipment.
But can employers legally do this?
And is there a justification for doing so? The answer to the first question is yes, they
can, in Ontario at least. Employment
rights advocates would answer with a resounding no to the second question, and
for strong policy-based reasons.
Tips form a mainstay of the income for employees in the hospitality and
service industry. Indeed, it is the
reason why minimum wage standards in these sectors are lower than in most other
industries. Employers know that these
workers rely on tips for their livelihood, and the law does to – to some
extent. However, Ontario’s employment laws
are checkered and inconsistent and there is no protection afforded to the
treatment of tips for these employees.
Given that many of these workers earn a living wage that places them below
or very close to the poverty line - the lack of legal protection with respect
to this employment issue places them in financial peril.
It is clear that Ontario law is in need of reform. Currently it is lagging behind many other
provinces that have already implemented legal protections in this area. Quebec specifies that tips belong to the employee
as of right and must not be intermingled with wages otherwise due to the employee.
Other provinces, including New
Brunswick, Newfoundland and Labrador, and Prince Edward Island have legislation
that prohibits employers from seizing an employee’s tips and gratuities.
A look at the statutory provisions and regulations of the Employment Standards Act itself, and how it
compares with companion legislation reveals many inconsistencies. According to s. 11(1) an employer “shall pay
all wages earned during each pay period,” and s. 13(1) further adds, unless otherwise
provided for in the ESA, “shall not make a deduction from an employee’s wages
or cause the employee to return his or her wages.” Sounds good so far, but then s. 1(1)
specifically excludes “tips and other gratuities” from the definition of wages”
leaving this vital source of income free for the taking by the employer.
“wages” means,
(a) monetary
remuneration payable by an employer to an employee under the terms of an
employment contract, oral or written, express or implied,
(b) any payment
required to be made by an employer to an employee under this Act, and
(c) any
allowances for room or board under an employment contract or prescribed
allowances,
but does not include,
(d) tips and
other gratuities,
If tips and gratuities are excluded from the definition of wages, then
how are they to be characterized in terms of income for the purposes of the ESA? It would seem that the drafters
barely turned their minds to it except to the extent that they decided to exclude
it from the definition of wages altogether.
However, this apparent intent to exempt tips and gratuities from the
definition of wages is difficult to reconcile with the regulation under the ESA that sets the minimum wage for
employees serving liquor below the legislated standard minimum wage (O. Reg
285/01). This regulation specifically
sets the minimum wage for employees who serve liquor in the course of their
employment at $8.90 an hour, as opposed to the $10.25 legal minimum which applies
to most other employees.
Thus, although the
ESA remains silent on how to formally
characterize tips, it has implicitly recognized that a bartender’s wage must be
supplemented with some other income source so as not to render this provision legally
void. To add even more fuel to the fire,
the Income Tax Act recognizes tips
and gratuities as taxable income. Tips
that are given to the employee from a customer must be declared on line 104 as “direct tips.”
The Policy Rationale for the Legislative Protection
of Tips and Gratuities
In response to challenges made against the practice of “tipping-out”,
restaurant managers have tried to argue that it is necessary for paying
dishwashers and other staff who do not receive tips in the course of employment. However, the outcry against “tipping-out” was
never about paying staff, it was always about the employer taking what rightfully
belongs to the employee.
No matter how the employer may try to spin it, most customers pay a
gratuity in the expectation that it will go to the employee, not the
employer. A tremendous power imbalance
exists in the employer-employee relationship and the retention of gratuities by
the employer constitutes a mishandling of this bargaining power.
It is the employer who stands to profit the most from the success of the
business while employee salaries stay more or less the same, regardless of
performance. The only exception being when
the employee does a particularly good job in the hospitality/service industry
and a patron rewards that performance with a tip. As a matter of sound business practice, it
makes little sense for the employer to take the tips earned by minimum-wage
employees, which usually constitutes a nominal percentage of the overall
profits, and remove the only economic incentive for employees to do good work. Good workers drum up good business, which
drums up more profit for the employer.
The legislation needs to be amended and should encompass workers across a wide spectrum -including hairdressers, valets, and hotel workers – who all rely on tips and gratuities as a significant portion of their incomes.
Michael Prue, NDP MPP for Beaches East-York,
has been lobbying for the passage of a law that would amend the ESA to prevent business
owners and management from skimming off tips.
Prue’s Bill 49, the latest of
a series of permutations that the bill has undergone since it was initially
introduced, passed second reading in May 2013.
Despite its popularity, the bill has died on the order paper before it
could receive Royal Assent and become legally enforceable. On his website, Michael Prue has demanded that
the government stop stalling and take action - “the time is now…will this bill be called for
third reading by this government?”
The time for the provincial
government to recognize the plight of minimum wage workers and formally address
their concerns is long overdue.
- Ana Kraljevic, Toronto
Visit our Toronto Law Office website: www.wiselaw.net
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