Employees With 'Meaningful Managerial Authority' Cannot Participate In A Tip Pool

The New York State Appellate Division, Third Department, recently reaffirmed the proposition that under New York law employees with meaningful managerial authority cannot participate in a tip pool. See Marzovilla v. New York State Industrial Board of Appeals, 2015 WL 1724727 (3rd Dept., April 16, 2015). In this action, several service members complained that a New York Italian restaurant, iTrulli, violated New York Labor Law Section 196-d by distributing shares of the tip pool to the "head waiter" and the "wine steward," who the service members alleged were managers. New York Labor Law Section 196-d provides that "[n]o employer or his [or her] agent ... shall demand or accept, directly or indirectly, 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 ... Nothing in this subdivision shall be construed as affecting ... the sharing of tips by a waiter with a busboy or similar employee." The New York State Department of Labor (DOL) agreed with the service members that the head waiter and wine steward were managers. As such, the DOL ruled that the tip pool violated Section 196-d and assessed a charge of $407,000, which included the disgorgement of the misappropriated tips, interest, and a civil penalty. Following a hearing, the New York State Industrial Board of Appeals (IBA) modified the amount of civil penalties and otherwise affirmed the DOL's ruling. Nicola Marzovilla, the owner of the restaurant, thereafter initiated an Article 78 in the New York Appellate Division, Third Department to review the DOL's ruling as modified by the IBA.

In reviewing this matter, the Third Department specifically considered Barenboim v Starbucks Corp., 21 N.Y.3d 460 (2013), a recent determination by the New York Court of Appeals. In Barenboim, the Court of Appeals addressed Section 196-d and held that the eligibility of certain employees to participate in a tip pool "shall be based upon duties and not titles." Id. at 471. The Barenboim Court explained that "employer-mandated tip splitting should be limited to employees who, like waiters and busboys, are ordinarily engaged in personal customer service, a rule that comports with the 'expectation[s] of the reasonable customer'" Id. at 471-72 (quoting, Samiento v. World Yacht Inc., 10 N.Y.3d 70, 79 (2008)). Barenboim recognized the long standing DOL policy that "employees who regularly provide direct service to patrons...