The Massachusetts Tips Act provides important protections for employees concerning the distribution of tips and service charges. A frequent dispute in these types of cases is whether the fee at issue is or is not a service charge That’s an important issue because the Tips Act does not apply to all charges imposed by employers on patrons; it only applies to charges properly characterized as “service charges.”

On August 23, 2021, the Massachusetts Supreme Judicial Court provided helpful guidance on this issue, ruling that a disputed banquet/facility fee was, in fact, a “service charge.” Hovagimian et al. v. Concert Blue Hill, LLC et al..

Concert Blue Hill owns and operates a business that hosts banquets and other events. Patrons follow three steps when they host an event using Blue Hill’s facilities:

1. Patrons sign an Event Contract with Blue Hill. This contract states that the patron will be charged a 10% gratuity that is remitted to wait staff employees, as well as a 10% “administrative” or “overhead” charge that is retained by Blue Hill.

2. Patrons sign a Banquet Event Order Invoice. This invoice identifies three charges: charges, taxes, and “service charges and gratuities.” The 10% “administrative charge” described at step 1 is not specifically identified on this invoice.

3. Blue Hill sends a final invoice to the patrons after the event has ended. This invoice, under a heading labeled “Service & Tax Charges,” lists three charges: tax, gratuity, and service. The 10% administrative charge is not labeled or identified in this final invoice.

The dispute in this case centered on the charge identified as an “administrative” or “overhead” charge in the contract, but called a “service” charge in the final bill.

The Massachusetts Supreme Judicial Court Explains Important Concepts Regarding the Massachusetts Tips Act and Service Charges

• The [Tips] act "applies to tips, gratuities, and fees that are called 'service charges' in aid of a clear purpose: letting employees keep these payments." Cooney v. Compass Group Foodservice, 69 Mass. App. Ct. 632, 638 (2007).

• If an employer "submits a bill, invoice or charge to a patron or other person that imposes a service charge or tip," the service charge or tip must be remitted to the employee for the services he or she rendered.” M.G.L. c. 149, § 152A (d).

• If a fee is determined to be a "service charge" under the act, then, as the statutory language further specifies, the "total proceeds of that service charge . . . shall be remitted only to the [protected employees] in proportion to the service provided by those employees." M.G.L. c. 149, § 152A (d).

• The Legislature intended to ensure that service employees receive all the proceeds from service charges, and any interpretation of the definition of 'service charge' must reflect that intent.

the massachusetts supreme judicial Court Provides Guidance On When Fees Charged to Patrons are Considered a service charge and therefore subject to the Massachusetts Tips Act

In this case, the Court noted that Blue Hill’s documents are inconsistent. The first document, the Event Contract, called the charge an “administrative” or “overhead” charge. According to the Court, if that were the only document at issue, the employer would have been permitted to retain the charge. However, the employer listed the disputed fees as “service” charges in the subsequent invoices. This, according to the Court, was sufficient for it to find that the charge at issue was a “service” charge, meaning that it could not be retained by the employer. The Court rejected the defendant’s argument that the fee at issue was not a “service” charge by virtue of the labels used in the initial contract of “administrative” and “overhead.”

The Court left the employer with helpful guidance:

All Blue Hill (or any employer) must do to avoid liability to its wait staff employees for an amount labeled as a "service" charge that the employer intends to retain is to be conscientious and consistent in its drafting.

Massachusetts Supreme Judicial Court Narrows Scope of Tips Act’s Safe-Harbor Provision

The Massachusetts Tips Act contains a safe-harbor provision that allows employers to "impos[e] on a patron any house or administrative fee in addition to or instead of a service charge or tip," but only so long as the employer give patrons a sufficient "designation or written description" of the fee. M.G.L. c. 149, § 152A (d), second par. The Court held that the safe-harbor provision could not apply in this case because the fee at issue was labeled a “service’ charge.

If you are a tipped employee with questions about the distribution of service charges contact employment lawyer Benjamin Steffans for a free consultation.