Court Voids Subminimum Wage for Tipped Workers

In a victory for labor and civil rights groups, the state Supreme Court on Monday struck down the subminimum wage that had been imposed in July for more than 500,000 restaurant employees and other workers who receive tips.

The court unanimously invalidated a two-tier wage system adopted by the state Industrial Welfare Commission that raised the minimum hourly wage from $3.35 to $4.25 for most workers--but increased it to only $3.50 for those receiving at least $60 a month in tips. All workers in California are entitled to $4.25 an hour, the court said.

The justices found that the subminimum wage conflicted with a 1975 state law that declared tips to be the “sole property” of an employee and barred employers from counting tips as wages.

“The commission has attempted to do the very thing the Legislature has prohibited--allow an employer to pay a tipped employee a wage lower than he would be obligated to pay if the employee did not receive tips,” Justice Stanley Mosk wrote for the court.

“Although in form they may be different, in function the ‘tip credit’ and the ‘alternative minimum wage’ are identical,” Mosk said.

The court held also that tipped workers were entitled to full pay as of July 1--when the two-tier system went into effect--thus clearing the way for claims for what may amount to hundreds of millions of dollars in back pay. Attorneys had calculated that California workers were losing more than $3 million a day while being paid $3.50 instead of $4.25 an hour.

Alan S. Levins of San Francisco, an attorney for the California Restaurant Assn. and the California Hotel and Motel Assn., which had backed the Industrial Welfare Commission in the case, said he was “very surprised and disappointed” by the ruling.

Levins said there is a “very real possibility” that paying the higher wage will force some employers to reduce work forces, convert to self-service or even go into bankruptcy. “These are very labor-intensive industries and many employers are operating very close to their budgets as it is,” he said.

May Seek Law Change

The attorney added that efforts might be made to persuade the Legislature to change the law.

Carmen Estrada, a staff attorney for the Western Center on Law and Poverty in Los Angeles, praised the ruling and expressed skepticism that it could lead to widespread layoffs or the closing of restaurants and hotels.

“The impact remains to be seen,” she said. “Employers already had argued that any increase in the minimum wage would lead to closures--but thus far that has not been an accurate prediction.”

John F. Henning, executive director of the state AFL-CIO, called the decision a “big victory” for the labor movement and low-income employees. “The industry will always give you an example of a waiter who’s earning a bundle at a luxury hotel,” he said. “But for every one of them, there are 10 or 20 others who aren’t getting anything near that.”

About 425,000 restaurant workers and another 100,000 deliverymen, chamber maids, bellhops, carwashers and other employees who earn tips will be affected by Monday’s decision.

Many Receive Tips

According to the restaurant industry, about two-thirds of its employees in full-service restaurants receive the minimum wage. More than 90% of the workers receive tips and, as of 1986, were earning an average of $8.43 an hour, the industry says.

The 1975 law at issue in the case had barred employers from decreasing wages to offset tips. Shortly after the law’s enactment, the restaurant industry sought a lower minimum wage for tipped workers. But the IWC, then under control of appointees of Democratic Gov. Edmund G. Brown Jr., refused, saying the law prohibited a subminimum standard.

In 1980, the state Supreme Court upheld the commission’s stand, saying it was a “reasonable” interpretation of the law. But the court left unclear whether the interpretation was binding on the commission in the future. Twice thereafter, the commission refused bids to establish a two-tier wage system.

But in December, 1987, the commission, made up of appointees of Republican Gov. George Deukmejian, voted 3 to 2 to impose the subminimum wage of $3.50 an hour for tipped workers effective July 1.

Henning and a coalition of civil rights groups challenged the action, saying that it would reduce the pay of a worker receiving the minimal $60 a month in tips from $8,840 a year to $8,000 annually.

Earlier Ruling Cited

Last June, a state Court of Appeal in Sacramento held that the two-tier system violated the 1975 law. In reaching its decision, the appeal panel cited the high court’s 1980 ruling that upheld the previous commission action.

In July, while the commission’s appeal was pending before the justices, it allowed the new two-tier system to go into effect. The IWC recommended that employers set aside funds to cover the 75-cents-an-hour difference in the two standards so they could provide back pay if the subminimum wage was struck down by the justices. But no one knows how many employers set money aside.

In Monday’s ruling, the court acknowledged that administrative agencies generally were entitled to considerable deference in their interpretations of the law. The justices agreed also that, as the commission contended, there was nothing in the state Constitution requiring a single minimum wage. And finally, the justices said, in its 1980 ruling the court did not “definitely” adopt the IWC’s interpretation of the law at that time.

But the court went on to say that the words and legislative history of the 1975 law showed the Legislature did not intend for employers to do indirectly what they could not do directly.

“The Legislature has broadly declared that the commission may not permit an employer to obtain the benefit of his employee’s tips by paying the employee a wage lower than he would be obligated to pay if the employee did not receive tips,” Mosk wrote.

In a separate concurring opinion, Justice Allen E. Broussard, joined by Justice John A. Arguelles, said that the court’s 1980 ruling had been conclusive and that the commission “was not free to disregard our decision.” The court, he said, should not have “reopened a question we have already decided.”