New York and Minnesota Use Same Objective Test in Employment Class Actions Regarding Gratuities

In recent years, New York has received attention for its application of Section 196-d of the Labor Law, which prohibits employers from retaining a gratuity or a charge that purports to be a gratuity. In a 2008 decision, Samiento v. World Yacht Inc., 10 N.Y.3d 70, 79 (N.Y. 2008), the Court of Appeals held that a mandatory service charge may be viewed as a gratuity owed to employees within the meaning of Section 196-d.

However, New York is not the only state with such a law. The Minnesota Fair Labor Standards Act (the “MLFSA”) states that “any gratuity received by an employee . . . is the sole property of the employee.” Like New York, Minnesota law says that mandatory charges may purport to be a gratuity, and cannot be kept by the employer.

Unlike New York’s judge-made law on mandatory charges, Minnesota has a specific regulation that provides that “obligatory charges which might reasonably be construed by the guest, customer, or patron as a sum to be given to the employee as payment for personal services rendered, include, but are not limited to, service charges, tips, gratuities, and/or surcharges which are included in the statement of charges given to the customer.”

In Luiken v. Domino’s Pizza, LLC, Civil No. 09-516 (DWF/TNL), 2011 U.S. Dist. LEXIS 135780 (D. Minn. Nov. 14, 2011), Judge Donovan W. Frank granted a motion for class certification in an action brought by two Domino’s Pizza delivery drivers who alleged that Domino’s retained a $1.00 “delivery charge”, in violation of the MFLSA. The drivers alleged that the “delivery charge” might reasonably be construed by the customer as a sum to be given to the employee who was delivering the pizza.

In opposing class certification, Domino’s argued that common proof would not predominate over individualized proof because an examination must be made into the facts of each transaction. Domino’s argued that each customer’s experience was different, and inquiry must be made into whether a customer had previously ordered from Domino’s, as well as the size of the order the customer made, and whether the customer had any discussions with Domino’s employees about the delivery charge.

Judge Frank dismissed Domino’s argument as “not dispositive” on a class certification motion. Rather, the plaintiffs had shown that the claims of all class members “result from the same alleged injury and are based on the same legal theory: that Domino’s violated the MLFSA by unlawfully retaining delivery driver gratuities as prohibited by the statute.”

Moreover, Judge Frank appeared to recognize that a claim for unlawful retention of mandatory charges is not based on a subjective analysis, but rather is objective, stating: “The Court finds that this claim—including the underlying contention that customers might reasonably have construed the delivery charge as payment to Domino’s delivery drivers for personal services rendered—is capable of classwide resolution. The Court further notes that whether the fact-specific circumstances articulated by Domino’s resulted in a customer’s actual belief that the delivery charge was not a tip for the delivery driver is not an issue the Court will be tasked with deciding.”

The Luiken decision may be persuasive to other courts deciding class certification. Like the MFLSA, the New York Court of Appeals has held that the question of whether a charge purports to be a gratuity is objective, and is to be measured by what a reasonable customer would believe. Although few class certification decisions have been rendered on Section 196-d claims since World Yacht, those courts that have faced the issue have recognized that the Court of Appeals’ reasonable patron test “obviate[es] the need to closely examine each individual customer’s frailties or idiosyncrasies.” Spicer v. Pier Sixty LLC, 269 F.R.D. 321 (S.D.N.Y. 2010). This objective standard should eliminate an argument frequently used by defendants in opposition to class certification: that individual inquiries must be made into each customer’s state of mind.

Abbey Spanier, LLP, located in New York City, is a well-recognized national class action and complex litigation law firm with a concentration in employment law.