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Class Action Defense Cases–Lu v. Hawaiian Gardens Casino: California State Court Affirms Summary Judgment For Defense In Labor Law Class Action Except For Class Action Claim Under UCL

Class Action Challenging Casino-Employer’s Tip-Pooling Policy Properly Thrown Out on Summary Judgment, but Single Claim – alleging Casino Violated Unfair Competition Law (UCL) by Sharing Tips with Employer’s Agents – Reversed because Triable Issue of Fact Existed as to Whether Employer Participated in Tip Pool in Violation of California Law State Court Holds

Plaintiff filed a class action against his employer, Hawaiian Gardens Casino, alleging violations of California’s Labor Code and of the state’s unfair business practices statute; specifically; the class action complaint asserted defendant’s written tip pool policy governing casino dealers, which “requires dealers to segregate 15 or 20 percent of the tips they receive at the close of each shift” but permits the dealers to keep the remaining portion of the tips they receive, violated California law. Lu v. Hawaiian Gardens Casino, Inc., ___ Cal.App.4th ___, 88 Cal.Rptr.3d 345, 350 (Cal.App. 2009). According to the allegations underlying the class action, the money placed into the tip pool was distributed among “designated employees who provide service to customers, such as the chip service people (also known as ‘chip runners’), poker tournament coordinators, poker rotation coordinators, hosts, customer service representatives or ‘floormen,’ and concierges.” Id. However, defendant’s policy expressly prohibited “employers, managers, or supervisors” to participate in the tip pool, id. Defendant moved for summary judgment on the grounds that its tip pooling policy did not violate California law, relying in part on Leighton v. Old Heidelberg, Ltd., 219 Cal.App.3d 1062 (Cal.App. 1990). Id., at 349. The trial court granted defendant’s motion and dismissed the class action, and the appellate court affirmed.

Defendant paid its dealers the minimum hourly wage every two week, without deduction for any tips they received; defendant did not use the tip pool to “offset or pay” the salaries it paid dealers and did not divert any of the money “for its own use.” Lu, at 350. The dealers’ take home pay was “significantly” in excess of the minimum wage, id. Plaintiff alleged that the casino’s tip pooling policy “constituted a conversion of his wages, and violated employee protections contained in Labor Code section 221 (employers may not compel wage kickbacks); section 351 (employers may not take, collect or receive gratuities); section 450 (employers may not compel employees to patronize the employer); section 1197 (employers may not pay less than minimum wage); and section 2802 (employer indemnification for employee’s necessary expenses).” Id. The class action alleged further that defendant’s policy constituted an unfair business practice, id. The appellate court noted that Leighton held that California law does not prohibit tip pooling in restaurants, but that no California case had addressed tip pooling in casinos. Id., at 349. Plaintiff argued that Leighton was distinguishable because “unlike restaurants where tips are left on the tables, in casinos, gratuities are handed directly to dealers, with the result that such gratuities belong solely to the dealers.” Id. Like the trial court, the Court of Appeal disagreed, concluding that “nothing in Labor Code section 351 prohibits tip pooling in casinos.” Id. The appellate court held further that while certain labor laws did not provide a private right of action, they could “nonetheless serve as predicates for suits under the UCL” and, accordingly, the trial court’s order was reversed as to that limited issue, id.

First, the Court of Appeal held that plaintiff did not have a private right of action under Sections 351 or 450, but concluded that he could nonetheless pursue a class action claim under the UCL for alleged violations of those statutes. See Lu, at 351-55. The appellate court held further that the trial court properly granted summary judgment as to all of the claims in the class action except for the class action’s UCL claim predicated on section 351. See id., 355 et seq. In this regard, the Court acknowledged that the defendant’s tip pools were not barred by Section 351, see id., at 355-59. We do not discuss the appellate court’s analysis in detail. We note only that, with respect to its conclusion that the summary judgment order on the UCL claim predicated on Section 351 must be reversed, the Court of Appeal held “[w]hile employer-mandated tip pooling policies are not forbidden by Labor Code section 351…, the arrangement must nonetheless not run afoul of the prohibitions in that statute.” Id., at 361 (citations omitted). Specifically, the tip pool may not be shared with the employer or employer’s agent, id. (citation omitted), and in opposition to the summary judgment motion, plaintiff “demonstrated a dispute of fact about whether some of the tip pool recipients are Casino ‘agents,’” id. Accordingly, while “tip pooling in the casino industry is not prohibited by Labor Code section 351,” id., at 362, the Court held that plaintiff had raised a triable issue of material fact sufficient to defeat summary judgment as to this limited issue, id.

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