THE Uber app allows riders to call, arrange and pay for taxi cab rides and other transportation services electronically via their mobile phone. On September 9, 2012, Caren Ehret used the UberTAXI option to arrange for a taxi ride in her city. When she signed up for the taxi driver to come pick her up, Uber charged a 20 percent gratuity for the driver. During the ride, Ehret asked the driver about the 20% gratuity. The driver told her that he actually received only half of the gratuity. After her trip, Ehret received a receipt that broke down the $15.90 charge as a $13.25 meter fare, and a $2.65 “Gratuity & Service Charge.”
Ehret filed a class action against Uber alleging that Uber’s representation of a “20% gratuity” is false, misleading, and likely to deceive members of the public, since the term “gratuity” suggests an amount paid in recognition of the driver’s service and not the actual fare. The case alleged unfair, unlawful, and fraudulent business practices, and violations of the California’s Consumer Legal Remedies Act.
Ehret contends that Uber advertised the 20% automatic charge solely as a “gratuity” for the drivers. However, the driver only received about half of the 20% gratuity charged to riders, with the rest going to Uber. At issue is whether Uber’s representations of a 20% automatic charge is considered gratuity or tip. If it is a tip/gratuity, then the full amount should go to the driver. If it isn’t considered a tip, then the amount should go to Uber.
In California, tips or gratuities are monies voluntarily given to a worker by a customer of a business for an amount over and above the costs of goods sold or services rendered. Tips properly belong to the employee and not the employer. Even where involuntary tip pooling is the practice, supervisors, managers and business owners are not allowed to share in the tip pool.
In the context of employment, an employer who permits patrons to pay gratuities by credit card must pay the employees the full amount of the gratuity indicated on the credit card slip. The employer cannot deduct the gratuity amount for credit card payment processing fees or costs that may be charged to the employer by the credit card company. The employer must pay employees gratuities charged on credit cards by the next regular payday following the date the patron authorized the payment.
Tips and gratuities, however, are different from the mandatory service charge. The latter is the amount that a guest is required to pay based on a specified service amount listed on the menu. For example, the restaurant can charge an additional 10 or 15 percent for the banquet. These charges are not gratuities or tips voluntarily given by customers to the employees but are owed by customers to the establishment itself. The employer has the option to distribute all or part of a service charge to its employees in the nature of a bonus. (This bonus shall also be included in the employee’s regular rate of pay when calculating overtime payments.)
The court in the Uber case allowed the consumers, who received Uber’s representations that the 20% charge would be gratuity only, to collectively claim damages against Uber under the Consumer Legal Remedies Act.
Before the case could proceed to trial, the parties agreed to settle the case, with Uber paying over 340,000 to about 47,000 customers who used the app for one year. This amount represents essentially a full refund of the tips paid by the riders.
Tips and gratuities are the norm in the service industry. Both consumers and workers should pay a closer attention to the tips/gratuities being charged to consumers to make sure these amounts go where they’re supposed to go – the workers’ pockets.
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The Law Offices of C. Joe Sayas, Jr. welcomes inquiries about this topic. All inquiries are confidential and at no-cost. You can contact the office at (818) 291-0088 or visit www.joesayaslaw.com.
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C. Joe Sayas, Jr., Esq. is an experienced trial attorney who has successfully obtained significant recoveries for thousands of employees and consumers. He is named Top Labor & Employment Attorney in California by the Daily Journal, consistently Aselected as Super Lawyer by the Los Angeles Magazine, and is a member of the Million Dollar-Advocates Forum.