Law Stack Exchange is a question and answer site for legal professionals, students, and others with experience or interest in law. It only takes a minute to sign up.
Sign up to join this community
First, what is the difference between tips and a gift? Can an employer legally order employees not to accept either? Can an employer order an employee to share it? For example in restaurants many have a system where tips that are given to the servers are shared with the kitchen staff. Can a server refuse to go with the system and keep her tips for herself?
This is under the law of British Columbia.
There is no law in Australia on the matter of tips: no legislation, no case law, no modern awards - nothing, nada, zilch.
There is a little bit of English law from the 19th century that is probably good law in Australia and a little bit from the 20th and 21st that probably isn't because Australia's employment law diverged significantly from the UK's following Federation in 1901.
This article by an American living in Australia gives a good overview of the current state of play of tipping.
As a native-born and bred Australian, I can anecdotally say that tipping, apart from a "keep the change" style, is a relatively recent phenomenon. Its rise is intimately linked with the Boeing 747 because that aircraft lowered the price of travel to Europe and North America to the point where most middle-class (from the 1980s) and working-class (from the 1990s) could travel and be exposed to the tipping culture there and bring it back home. At the same time, there were Europeans and North Americans travelling to Australia and bringing their tipping habits with them and, most people don't refuse a tip when it's offered even if tipping is unusual.
However, the rise in tipping culture has been offset by the decline in cash payments - tipping by handing the server extra cash is easier than when using a tap-and-go electronic payment. Some outlets allow a % tip to be added to the bill but the overwhelming majority don't.
It's fair to say that tipping in restaurants and cafes with table service is appreciated but not expected and it is virtually unknown outside that sector. Australians do not routinely tip where payment for food happens in advance, taxi or Uber drivers, bartenders, hairdressers, nail artists, masseuses, doorpersons, bellhops or concierges.
Tips do not make up a large proportion of hospitality workers' income - they are paid a minimum award wage which is currently AUD 19.84 (USD 15.39) per hour plus an additional 25% if they are casual employees. Tips are a genuine gratuity - a payment made in appreciation for exceptional service; not a payment for just doing your job.
I venture to suggest that most Australians who tip expect that the tips go to the employee(s).
We don't really know but it's fair to say that there is a wide diversity of practice.
Gow & Frazer of the University of Wollongong produced Who owns tips? Hospitality workers and the distribution of customer gratuities in 2015 based on a tiny qualitative study of 6 restaurants, 6 cafes and 6 bars, all non-family owned, in the CBD of Wollongong the 3rd largest city in New South Wales (11th largest in Australia) with a population of just over 300,000 today (about 280,000 at the time of the study in 2014). As far as they knew, there had never been any research on this before their paper.
They found that cash tips may be given directly to the server, left on the table or bar, or placed in a prominent tip jar near the till. Electronic tips naturally go into the business' bank account. The tip jar was the most common (n=11) and electronic tips were non-existent outside restaurants but common (n=5) and a significant proportion of tip revenue in those.
Once received, tips may be appropriated by the employer/proprietor, retained by individual serving staff, or pooled in some fashion for distribution. Media accounts suggest that pooling of tips is normal at hospitality establishments in Australia, although it is common for the employer/proprietor to keep a portion of the pool before distribution, or else to take a share of the tip pool on distribution. All of the Wollongong establishments examined used pooling of tips. Once pooled, tips were distributed using one or a combination of the following methods:
- dividing the tips evenly at the end of a shift with remaining staff (n=6);
- dividing the tips based on hours worked on a periodical basis (n=6);
- allocating the total amount for a staff social event, such as the Christmas party or periodical dinners (n=7); and
- retaining the tips for the business, either entirely or by percentage (n=6).
The distribution systems reported by research participants ranged from simple to very complex. ...
Research participants were asked what the correct response would be under the workplace tipping system if a customer directly handed an employee a $20 tip. Some hospitality enterprises permitted or encouraged employees to keep the hypothetical $20 despite the pooling system (n=5). The majority of hospitality enterprises required employees to contribute any tips given directly by customers into the distribution pool (n=13). The research participants were also asked whether they would pool the tip or keep the tip in this situation. Of the 13 establishments that required employees to pool direct tips, five research participants responded that they would keep the tip in breach of the ‘rule’. Many respondents pointed out that the direct and personal nature of the tip made them feel they ‘earned’ the money.
There was also evidence that some employers withheld tips as a disciplinary measure.
A tip has the legal status of a gift since it is not a contractually obligated payment. That is, once offered and accepted title passes from the giver to the recipient. However, most tips are anonymous and there is no clear indication from the giver who the intended recipient is. Is it the business? The individual server? All the servers collectively? All the employees collectively including back-of-house?
We don't know.
Judgements from 19th century England set a clear precedent that an employee has a well-recognised duty to account to their employer for all property acquired in the course of their employment. This is a duty in both common law and equity and does not depend on the existence of fiduciary duties. For example, in Morison (1874) LR 9 QB 480 at 483:
the profits acquired by the servant or agent in the course of, or in connection with, his service or agency, belonging to the master or principal.
So, that's clear then. The employer owns the tips, right? Well ...
Around the turn of the 20th century, the UK imported the tronc system where tips for servants in seaside resorts, who were initially independent contractors rather than employees, were pooled and then distributed by one or more of those servants who were entrusted with the task by the others. As these servants became employees of the hotels and resorts, the tronc system was maintained largely without management involvement.
The practice was considered by the English Court of Appeal in Wrottesley v Regent Street Florida Restaurant [1951] 2 KB 277 who held that the tips were not 'wages' and that the employer never held title to them even though they were in his custody. However, the court assumed this state of affairs - they didn't actually rule it - they implied a trust prospectively without actually finding that a constructive trust had actually been established. This state of affairs was also assumed in Annabel’s (Berkeley Square) Ltd v Revenue and Customs Commissioners [2009] 4 All ER 55; [2009] ICR 1123; [2009] STC 1551; [2009] EWCA Civ 361.
So, that's clear. The tips belong to the employees. Well, ...
The tronc system never happened in Australia so it's unclear if this finding (which \doesn't actually find anything - it assumes a state of affairs) would apply. On the one hand, it seems similar to the tip pooling that usually happens but the employer is more intimately involved than they are with the tronc in the UK.
There are two English cases (Penn v Spiers & Pond Ltd [1908] 1 KB 766; (1908) 1 BWCC 401; Great Western Railway Co v Helps [1918] AC 141) that found that when tips are handed directly to an employee, the money belongs to the employee:
In both cases the court found that where the giving and receiving of tips is ‘open and notorious … [and] sanctioned by the employer’, a term was implied in the contract that employees were allowed to retain tips.
However, in Nerva v RL & G Ltd [1997] ICR 11 the court found that when tips were paid by cheque or credit card they became the property of the business. However, a dissenting opinion held that while legal title passed to the employer, they were acting as an agent of the customer and had a duty to fulfil the customer's wishes that the money goes to the employees.
It's worth noting that all of the 20th and 21st-century disputes above were not between the employer and employee over ownership of the tips directly but about matters such as whether tips could be counted as part of the minimum wage, are subject to insurances levied on wages and other indirect matters. That is, they were not about who owned the tip, but what effect the payment of the tip had on other workplace obligations.
Implied terms
While the English terms above are implied by law (and there are no such precedents in Australia), terms can also be implied in Australia by:
Awards
There are four modern awards relevant to employees who receive tips (Hospitality Industry (General) Award 2010 [MA000009]; Registered and Licensed Clubs Award 2020 [MA000058]; Restaurant Industry Award 2010 [MA000119]; Fast Food Industry Award 2010 [MA000003]). None of these have any provision concerning tips.
Enterprise agreements
Enterprise agreements may only contain content which deals with matters pertaining to the relationship between the employer and employees who are covered by the agreement. On one view, tips clearly have a direct impact on employer-employee relations. ...
On another view, tips potentially fall beyond matters pertaining to the employment relationship due to the role of the customer as a party in the transaction.
The second approach is indirectly supported by a 2003 application for an Enterprise Agreement:
The employer argued that, because they recognised employees’ entitlement to tips, this benefit could be taken into account under the former ‘no disadvantage’ test'. Watson SDP rejected this contention, stating that ‘employees are entitled to retain gratuities. The agreement provides no benefit in this regard’.
However, the Fair Work Commission is an administrative tribunal, not a court, so its decisions do not set precedent. Since this decision was not appealed ...
Unauthorised deductions
Section 323 of the Fair Work Act requires employees to be paid in full, in money, and at least monthly. If tips are wages or entitlements, then they cannot be withheld to pay for breakages or till shortfalls, be paid in other than money (as social events would be), or paid 3 monthly as some respondents reported.
Alternatively, if they are not and they are the employee's property held by the employer on trust or as agent for the customer, then the employer cannot appropriate them either.
Consumer law
The Australian Consumer Law provides potential rights and remedies for customers and employees. It is a tenable proposition that most customers assume that the tips they provide will be distributed to staff members at some point. When employers retain tips in whole or in part, or when tips go to a staff social event, a breach of the Australian Consumer Law may occur. For example, a distribution contrary to an express statement or implication made to a customer would breach the misleading or deceptive conduct provision.
There is a second provision in the Australian Consumer Law which may be used by employees. Section 31 prohibits conduct liable to mislead persons seeking employment as to ‘the availability, nature, terms or conditions of the employment; or any other matter relating to the employment’. This still may have application as in some hospitality establishments tips are a significant proportion of income and may be a decisive factor in choosing to accept employment. This provision is beneficial to aggrieved employees as it relates directly to employment, and is an offence of absolute liability with criminal provisions.
Tax
The Australian Tax Office is quite clear that whoever ultimately receives the tip owes income tax on it. There is a legal onus on the taxpayer to declare them and remit the taxes. If tips are wages or entitlements, then there would be an onus on the employer to withhold tax and remit it on behalf of the employee. In practice, cash tips probably go missing from tax reporting.
Similarly, if tips are wages then they would be subject to state payroll taxes and other wage overheads like workers compensation premiums. It would follow that injured workers should be able to claim them under workers compensation.
They would not be subject to Goods and Services Tax because, being voluntarily, they are not payment for goods or services.
what is the difference between tips and a gift?
Tip suggests a context services provided, where a customer feels satisfied enough to voluntarily give some extra compensation to the employee(s) who provided the service. See the definition of gratuity in the BC Employment Standards Act. The term gift is more general in that it does not need to involve a context of employment/services. A gift can be made before a service is provided or without a service being --or expected to be-- provided at all. The Act does not even define or use the notion of gift in a way distinguishable from gratuities.
Can an employer legally order employees not to accept either?
No. Section 30.3(c) of the Act prohibits the employer to "require an employee to return or give the employee's gratuities to the employer". Employer's order not to accept gratuities is equivalent to requiring the employee to return them. However, section 30.4 provides an exception which relates to your next question.
Can an employer order an employee to share it?
Yes, provided that "the employer collects and redistributes gratuities among some or all of the employer's employees". See section 30.4.
The statute allows the employer to share in gratuities "if the employer regularly performs to a substantial degree the same work provided by (a) some or all of the employees who share in the redistribution, or (b) employees of other employers in the same industry who commonly receive or share in gratuities".
someone was fired when he said "yes" when a customer asked if he would like a hat.
That is in violation of sections 30.3 and 30.4. The manager's bare story does not relfect elements which would render that policy, let alone the decision to terminate the employee, permissible.
