Tip Pool Conversion: California Compliance for Employers
Introduction
California Labor Code section 351 forbids employers and their agents from taking any portion of tips left for employees or redirecting tip pool money to ineligible recipients, such as owners, managers, or supervisors. Employers must keep accurate records of all gratuities received for employees.
Lab. Code §§ 350(a), (b), (e), 351, 353.
Essential Elements of a Tip Pool Conversion Claim
To establish wrongful conversion of tip pool money, an employee must prove:
The defendant was an employer or other covered entity;
The plaintiff was an employee of the defendant;
The defendant maintained a tip pool for distribution of tips left by patrons for services rendered or items sold;
The defendant took tip pool money the plaintiff was entitled to, or allowed ineligible individuals—such as owners, managers, or supervisors—to receive tip money designated for eligible employees.
The employee does not need to prove the exact amount taken.
Lab. Code §§ 350(a), (b), (d), 351.
Scope of Tip Pools
The law prohibits employers and agents from sharing in tip pools. Only employees who serve patrons directly may share pooled tips. Courts must determine as a matter of law whether an individual or class is eligible to participate in a tip pool.
Lab. Code §§ 350(a), (d); 351; Leighton v. Old Heidelberg, Ltd., 219 Cal. App. 3d 1062, 1068 (Ct. App. 1990).
Practical Guidance for California Employers
Maintain strict policies ensuring only eligible employees receive pooled tips—exclude owners, managers, and supervisors from tip pool allocation.
Accurately record all tips and gratuities, per statutory recordkeeping obligations.
Do not deduct tips from employee wages, use tip income in employer gross receipts, or require employees to credit tips against wages.
Periodically review tip pool structures for compliance with definitions of "employee" and "agent" in the statute.
Clearly document which job titles are included and excluded in tip pool disbursements.
Bottom Line
California law requires employers to safeguard employees’ tips and prohibits disbursement to ineligible persons. Failure to comply with tip pool requirements exposes businesses to serious liability, regardless of the employer’s actual profit from the pool. Strict eligibility and recordkeeping are essential.
Citations
Lab. Code §§ 350(a), (b), (d), (e), 351, 353; Leighton v. Old Heidelberg, Ltd., 219 Cal. App. 3d 1062 (Ct. App. 1990); Chau v. Starbucks Corp., 174 Cal. App. 4th 688 (Ct. App. 2009).
