Service Charge

Service Charge

Service Charge

In New York, a “service charge” or fixed gratuity belongs to the waitstaff.

Section 196(d) of the New York Labor Law provides that an employer or his agent cannot accept “any part of the gratuities, received by an employee, or retain any part of a gratuity or of any charge purported to be a gratuity for an employee.”  The New York courts have interpreted this provision to mean that a restaurant cannot add a “service charge” or gratuity to the bill without passing it on to the waitstaff.  In other words, a restaurant cannot keep a “service charge” or gratuity that it leads customers to believe will be given to the waiters.  However, if the restaurant adequately conveys to the customer that the charge is not going to the waitstaff (i.e., by referring to it as an “administrative fee”) then the restaurant is allowed to keep all or a portion of the charge, but not any additional amount the customer intends for the waitstaff.

A charge for the administration of a banquet, special function, or package deal must be clearly identified as such and customers must be notified that the charge is not a gratuity or tip. However, the employer has the burden of demonstrating, by clear and convincing evidence, that the notification was sufficient to ensure that a reasonable customer would understand that such charge was not a gratuity. Under the Hospitality Wage Order, adequate notification includes a statement in the contract or agreement with the customer, and on any menu and bill listing prices, that the administrative charge is for administration of the banquet, special function, or package deal, is not a gratuity, and will not be distributed as gratuities to the employees who provided service to the guests. The statements must use ordinary language which can be readily understood and appear in a font size similar to the surrounding text, but no smaller than a 12-point font.

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