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Tips are wages under Minnesota wage deductions law; no need to show unlawful deductions made wages fall below minimum

By Joy P. Waltemath, J.D.

Tipped employees who brought a class action were entitled to judgment as a matter of law that deductions their employer made from their gratuities were unlawful under Minn. Stat. Sec. 181.79 because their gratuities were “wages,” ruled the Minnesota Supreme Court (Karl v Uptown Drink, LLC, August 14, 2013, Gildea, L). To prove their violation, the employees were not required to show the deductions caused their wages to fall below the minimum wage. Accordingly, the court reversed an appeals court decision against servers, bartenders, and security guards whom their employer had required to pay, from their gratuities, for register shortages and for customers who walked out without paying or failed to sign credit-card receipts.

Wages includes gratuities. According to the Minnesota Supreme Court, its 2005 decision in Brekke v THM Biomedical, Inc., which defined wages under Sec. 181.79 by reference to Sec. 181.66 of the Equal Pay for Equal Work Law’s definition that included “all compensation for performance of services by an employee for an employer, whether paid by the employer or another person,” was controlling. Both the trial court and the appeals court had believed otherwise, finding that the deductions came from the employees’ gratuities and not their hourly pay, and thus were not unlawful. To the state high court, however, gratuities plainly qualified as “wages” under this definition.

In addition, the court looked to the purpose of Sec. 181.79. That provision makes it unlawful for an employer to make any direct or indirect deductions from the wages “due or earned” by an employee for lost, stolen, or damaged property, or to recover “any other claimed indebtedness” unless the employee, after the loss or claimed indebtedness occurred, voluntarily authorized the employer, in writing, to make the deduction. This purpose would be undermined if gratuities were not “wages,” said the court, “because it would allow employers whose employees receive gratuities to use self-help to enforce a claimed indebtedness, creating different levels of protection for tipped and non-tipped employees.” Here, the employers undisputedly required the employees to use gratuities to pay for register shortages, walkouts, and unsigned credit-card receipts. Further, the employers argued that the payments were not deductions because the employees on “their own volition” decided that “rather than taking a write-up for improperly failing to handle cash,” they would cover the shortages to the employers.

Minimum wage violation not required. Both courts below also erred when they held that employees seeking to recover under section 181.79 were required to show that the deductions at issue caused their wages to fall below the minimum wage. Specifically, the appeals court held that administrative rules pertaining to the Minnesota Fair Labor Standards Act applied to Sec. 181.79. Not so, said the supreme court, pointing out that the plain language of Sec. 181.79 does not require employees to show that deductions caused their wages to fall below the minimum wage. “The statute says nothing about the minimum wage,” emphasized the court, noting the statute prohibits any deductions. Because it was undisputed that the employees were required to pay the employer back for register shortages, walk-out customers, and unsigned credit card receipts, which deductions were not authorized voluntarily and in writing, the court reversed the court of appeals and remanded to the trial court to enter judgment as a matter of law to the employees on liability for their Sec. 181.79 claim.