Court Rejects Lower Wage for Workers Who Get Tips

A state appeal court in Sacramento unanimously struck down a “sub-minimum” wage scheduled to go into effect July 1 for employees who receive tips. The decision could affect as many as 500,000 California workers.

The new category of wage earners was created last Dec. 18 by a 3-2 vote of the state Industrial Welfare Commission, which raised the minimum wage in California from $3.35 to $4.25 for most workers but set a $3.50 minimum wage for employees, such as restaurant workers, who receive at least $60 a month in customer tips.

Under the unanimous ruling by the 3rd District Court of Appeal, employees who get tips would instead collect at least $4.25 an hour. A spokesman for the commission said it will appeal the ruling to the state Supreme Court and seek to stay the appellate court order pending a high court decision in the case.

The appeal court decision was filed Thursday and received by lawyers Friday.

“This is a great victory,” said John F. Henning, executive secretary of the California Federation of Labor (AFL-CIO), one of several organizations that filed suit in March challenging the creation of a separate wage for employees who receive tips. Other plaintiffs included Welfare Action, a Los Angeles group of low-income people, and seven workers who receive tips.

“This is an important decision for the thousands of tipped employees in California,” said Kathryn Grannis of the Legal Aid Foundation of Los Angeles, one of the lawyers in the case.

Richard Stephens, a spokesman for the state Department of Industrial Relations, said the Industrial Welfare Commission voted 3 to 2 Friday to appeal.

In creating the alternative wage, the commission, made up of appointees of Gov. George Deukmejian, reversed a 1980 interpretation of section 351 of the state Labor Code dealing with tipped employees. The code section prohibits employers from counting employees’ tips as a credit against wages.

In the suit, a coalition of organizations asserted that the commission’s December decision violated the Labor Code section. The commission contended in response that it was authorized to alter its interpretation of the statute. Commission lawyers contended that the “sub-minimum” wage was different than a tip credit.

Notes Concession

Noting the commission’s concession that the state Supreme Court had upheld its 1980 interpretation of the statute, Judge Robert Puglia, writing for the Court of Appeal, ruled that “while administrative agencies are not bound by their own prior construction of a statute, they are (not) free to reject prior constructions which have . . . been endorsed by the courts.

“We must continue to construe section 351 to prohibit the IWC (Industrial Welfare Commission) from establishing an alternative lesser minimum wage for tipped employees,” Puglia added.

Alan Levins, a lawyer for the California Restaurant Assn., which intervened in the case on behalf of the commission, said it will join the appeal and the efforts to obtain a stay.

Levins and lawyers for the plaintiffs estimated that as many as 500,000 California workers could be affected by the decision. The commission estimated last December that only about 100,000 Californians would be included in the sub-minimum wage category.

Claim Adverse Effect

Plaintiffs in the suit argued that the sub-minimum wage would have a disproportionately adverse effect on minorities and women--citing recent federal Bureau of Labor Statistics figures showing that more than 80% of all restaurant food servers are women.

The suit also asserted that the sub-minimum wage would create inequities. A full-time employee at the new $4.25 an hour minimum wage will gross $8,840 a year. An employee working full-time at the $3.50 wage who earns $60 a month in tips would earn only $8,000 per year.