A note from Teresa Mitchell, LawNow editor:
Our columnists have always been one of the great strengths of LawNow magazine. Each issue they write about the area of law that interests them the most, and the results are concise, informative, and sometimes provocative. Our columns cover family law, human rights decisions, aboriginal law, employment law, law and literature, and more. It is our pleasure to begin to share some of these columns with readers of our blog. We start with an employment law column by long-time LawNow contributors, Professors Peter Bowal, of the Haskayne School of Business in Calgary, Alberta, and Thomas Brierton, of the Eberhardt School of Business, University of the Pacific in Stockton, California. Their topic is: Tips – Who Owns Them? It is an informative and lively look at this employment law topic, and we hope that you enjoy reading it.
Many Canadians in the hospitality or service industry, and those with control over the ubiquitous tip jar, will want to know how the law treats tips and gratuities. In particular, do tips added to the bill or extra cash left behind belong to the employer or to the employee? Is an employee required by law to report tips to the employer?
In theory, there are arguments on both sides of the “who’s tips?” question. On one hand, customers have a legal and contractual relationship with the business entity only, and employees are mere agents performing services and receiving payments for the employer. Under the control principle, the business hires, trains and accepts risks for the employee. Customers only have a legal obligation to pay the employer. Tips may be considered as rewards to the business. If employees please customers, why should the employer not reap the benefits, including gratuities, for successful business service?
On the other hand, we know that customers are often personal in their tipping. They prefer tips to go to the employee. Tips might be individual employee “gifts,” since they are given voluntarily by customers to the front line service staff. Since customers are not required to leave tips and they determine amounts, employers are distanced from this gratuity.
There is little legislation or common law to clarify ownership. Tips and gratuities “intended for an employee” in Prince Edward Island are the property of the employee. If they are taken by the employer, they must be returned within 60 days. Likewise, Quebec law states: “Any gratuity or tip paid directly or indirectly by a patron to an employee who provided the service belongs to the employee of right and must not be mingled with the wages that are otherwise due to the employee.”
Specific Intention Expressed by Tipper
Ideally, one would obtain the intention of each tipper at the time they tip, but that is not feasible. The intention of the tipper, if manifested, will always be paramount. Often tips are left at the point of sale without further communication. No intention is expressed and the tip seems offered to the business like any other feedback. If the tipper says to the employee something like “here, take this and buy yourself something nice,” it is a personal gift, even though it was given and received in the context of employment. Words to the effect that, “you’ve given us great service, so please keep the change” suggest that the tipper was giving the money directly to the tippee, and not to the employer.
Legislation Does Not Count Tips as Wages
Provincial legislation across Canada is clear that customers’ tips cannot count as part of employees’ wages. Employers must ensure that they pay at least minimum wage to employees. The Alberta Employment Standards Code is typical (or “tip-ical”?). It defines wages as “salary, pay … commission or remuneration for work, however calculated, but does not include … tips or other gratuities.” This falls short of deciding the ownership issue, although it recognizes employee receipt of tips.