California Employment Law Report : Los Angeles Employment Lawyer & Attorney : Anthony Zaller Law Firm : California Employment Law Report

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A reader of the California Employment Law Report asks if it is possible to have employees enter into an agreement that would allow the employer to count a portion of the employees’ tips towards the minimum wage requirement. “Tip credit” is recognized by many states and it allows employers to count a portion of the employees’ tips towards a portion of the minimum wage requirement. Whether this is allowed and to what extent employers can offset their duty to pay minimum wage varies from state to state. Unfortunately, California does not allow tip credit. But the question raises another issue of whether it is possible to have employees agree to a tip credit even though the Labor Code does not provide for any credit.

As I’ve written about before, there are a few rights under the California Labor Code that employees cannot waive for public policy reasons. Labor Code Section 1194 provides a private right of action to enforce violations of minimum wage and overtime laws, and the statute voids any agreement between an employer and employee to work for less than minimum wage or not to receive overtime. It provides:

Notwithstanding any agreement to work for a lesser wage, any employee receiving less than the legal minimum wage or the legal overtime compensation applicable to the employee is entitled to recover in a civil action the unpaid balance of the full amount of this minimum wage or overtime compensation, including interest thereon, reasonable attorney’s fees, and costs of suit.

Therefore, any agreement entered into with employees permitting a tip credit would not be permitted under California law, as the employee would be waiving his or her right to minimum wage, which is not allowed under Labor Code Section 1194.

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The Federal minimum wage increased to $7.25 per hour on July 24, 2009. However, because California’s minimum wage is $8.00 per hour, the increase in the Federal minimum wage does not affect California employers, as employers need to pay the higher of the two minimum wages.  Here is an interesting table of the history of California's minimum wage amounts. 

Other notes about California minimum wage:

• There is no tip credit allowed in California for tipped employees. Employers still must pay $8.00 per hour even for employees who receive tips while working.  Click here for a list of states that do recognize a tip credit. 
• Employees cannot not waive their right to receive minimum wage (see Labor Code section 1194(a)).
• There are a very limited number of employees who are exempt from minimum wages, such as outside salespersons or family members of the employer.
• If an employee prevails in a lawsuit for unpaid minimum wages, he or she is also entitled to attorney’s fees as costs of the suit under Labor Code section 1194(a) (which, often times are larger than the minimum wage amounts not paid in the first place). 
   

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