Service Charge vs. Gratuity: Restaurant Liability?

Posted on: July 7, 2015 by RMS Hospitality

An upscale restaurant in Manhattan has made headlines recently for failing to pay employees their tips. What was categorized as a “service fee,” was actually required to be paid to employees per the written agreement. As these discrepancies are fairly common yet can cause hefty legal damage payouts, be sure to equip your business with a New York Restaurant Liability insurance policy.

Per Se restaurant in New York, owned by celebrity chef Thomas Keller, is under scrutiny for failing to pay tips to their staff. New York Attorney General Eric Schneiderman’s Office said that Per Se failed to distribute the 20% “service charge” that private dining clients added to their bill under the assumption it was gratuity for the wait staff. As it is one of the most expensive restaurants in New York, Per Se has been ordered to pay out $500,000 in restitution fees to disperse among 60-70 wait staff employees who worked at the restaurant between January 2011 and September 2012.

Although email correspondence between Per Se and potential private dining clients explain the service charge as covering tips, the attorney general stated that the restaurant is in violation of New York labor laws by not allocating that money correctly. The fee was said to actually cover rent, marketing, wages, maintenance, benefits, and other administrative fees.

Per Se, however, claims that they willfully changed the wording of the written private dining agreement when the laws were changed in 2011 which required restaurants to notify consumers the intent of the service charge versus gratuity. They stated that they are in full compliance with labor laws and have been as of three years ago.

At RMS Hospitality Group, we are fully informed on the risk exposures that restaurants like yours face on a daily basis. We strive to provide quality and affordable solutions to protect your assets, your property, and your reputation. To learn more, contact our specialists today at (888) 359-8390.

Posted in: blog Restaurant Insurance

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