In Garcia v. Four Points Sheraton LAX, the California Court of Appeal upheld the City of Los Angeles “service charge” ordinance against a variety of constitutional challenges mounted by the hotel industry. The Court of Appeal reversed the Los Angeles Superior Court, which refused to enforce the ordinance on the grounds that it was preempted by California state law.
The service charge ordinance was originally conceived by DCB attorney Rich McCracken. It fills a huge gap in the law. California Labor Code section 351 requires employers to let employees keep the tips they receive. But “service charges” added to bills for banquets, room service, luggage handling and other hospitality services have been held not to be “tips”. As a result, many hotels and restaurants simply pocket all or part of these charges even though guests think that the money is going to the employees providing the service. Then the guests tend not to tip the employees because they think the employees are already being compensated through the service charges.
The Council acted to correct this situation. Its ordinance requires that all service charges go to the workers providing the services.
When actions were filed to enforce the ordinance, the hotels responded by arguing that it was unconstitutional under the California and U.S. constitutions. They argued that it was preempted by the state tip statute and also that it was a violation of equal protection, unconstitutionally vague and a “taking” of their property. The Superior Court agreed that the ordinance was preempted by the tip statute. The Court of Appeal disagreed. It rejected the hotels’ contention that the legislative intent behind the tip statute was to guarantee to employers all income from customers except tips and held that Los Angeles is free to regulate what happens to service charges. The court also ruled that it was proper for the City Council to single out the LAX corridor hotels because of their location and profitability. It noted that the hotels themselves had caused a special district to be formed for their benefit. The court also dismissed the hotels’ other constitutional arguments. Among other points, the court said that it was not unconstitutional to exempt unionized hotels from the ordinance because unionized workers are better able to protect their interests.
DCB attorneys defended the ordinance in the superior and appellate courts, along with the Los Angeles City Attorney’s Office and Hadsell Stormer Keeny Richardson & Renick.
For more information on this law, please go to www.servicechargesforhotelworkers.com.
