O'Grady v. Merchant Exchange Productions, Inc. ( 2019 )

Filed 10/31/19
CERTIFIED FOR PUBLICATION
IN THE COURT OF APPEAL OF THE STATE OF CALIFORNIA
FIRST APPELLATE DISTRICT
DIVISION TWO
LAUREN O’GRADY,
Plaintiff and Appellant,
A148513
v.
MERCHANT EXCHANGE (San Francisco County Super.
PRODUCTIONS, INC., Ct. No. CGC-15-547796)
Defendant and Respondent.
An employer is in the business of providing a banquet facility at which food and
beverages are served. The employer adds a mandatory, and substantial, “service charge”
to the contract for every banquet. The employer distributes some of the service charge to
managerial employees who do not serve food and beverages at the banquet. An
employee filed a putative class action to force the employer to treat the service charge as
a gratuity and distribute all of it to employees who do serve food and beverages at the
banquet. The employer took the position that two Court of Appeal opinions hold, as a
matter of law under stare decisis, that a service charge can never be a gratuity. The trial
court agreed, and sustained the employer’s general demurrer without leave to amend.
The issue presented here is whether the “service charge” may be a “gratuity” that
Labor Code section 3511 requires to go only to the non-managerial employees involved
with the actual serving of the food and beverages. We conclude there is no categorical
prohibition why what is called a service charge cannot also meet the statutory definition
of a gratuity, and thus we reverse.
1
Statutory references are to the Labor Code unless otherwise indicated.
1
BACKGROUND
Plaintiff Lauren O’Grady describes herself in her complaint as “a banquet server
and bartender at the Julia Morgan Ballroom” in San Francisco that is owned and operated
by defendant Merchant Exchange Productions, Inc. Plaintiff brought this putative class
action for herself “and on behalf of all others similarly situated, namely all other non-
managerial food and beverage banquet service employees who have worked at the Julia
Morgan Ballroom.”
The object of the action was defendant’s practice of automatically imposing a 21
percent “service charge” to every food and beverage banquet bill. According to plaintiff,
part of the monies collected as service charges are kept by defendant, with the rest
distributed by defendant to “managers and other non-service employees.” Plaintiff
alleged that the service charge constituted a gratuity, but defendant has “failed to
distribute the total proceeds of [these] gratuities to non-managerial banquet service
employees” as required by California law, and thus defendant’s practice “violates”
section 351.
The totality of plaintiff’s factual allegations (omitting only paragraph numbers)
read as follows: “At the Julia Morgan Ballroom, Defendant has routinely added a 21%
service charge to its food and beverage banquet bills. [¶] These service charges have
been in the form of automatic charges which customers are required to pay, and which
reasonably appear to be gratuities for the service staff. [¶] It is typical and customary in
the hospitality industry that establishments impose gratuity charges in the range of 18-
22% of the food and beverage bill. [¶] Thus, when customers have paid these charges, it
is reasonable for them to have believed they were gratuities to be paid to the service staff.
[¶] Indeed, because of the way these charges are depicted to customers, and the custom
in the food and beverage industry that gratuities in the range of 18-22% are paid for food
and beverage service, customers have paid these charges reasonably believing they were
to be remitted to the service staff. [¶] However, the defendant has not remitted the total
proceeds of these gratuities to the non-managerial employees who serve the food and
beverages. [¶] Instead, the defendant has had a policy and practice of retaining for itself
2
a portion of these gratuities and/or using a portion of these gratuities to pay managers or
other non-service employees.”
Defendant’s service charge practice was alleged to support the following causes of
action:
“COUNT I
“Statutory Gratuity Violation
“Defendant’s conduct, as set forth above, in failing to remit to non-managerial
banquet service employees the total proceeds of gratuities added to banquet customers’
bills constitutes a violation of California Labor Code § 351. This violation is enforceable
pursuant to the California Unfair Competition Law, Cal. Bus. & Prof. Code § 17200 et
seq (UCL). Defendant’s conduct constitutes unlawful, unfair, or fraudulent business acts
or practices in that Defendant has violated California Labor Code § 351 in not remitting
to the non-managerial service employees the total gratuities that are charged to
customers. As a result of Defendant’s conduct, Plaintiff and class members suffered
injury in fact and lost money and property, including the loss of gratuities to which they
were entitled. Pursuant to California Business and Professions Code § 17203, Plaintiff
and class members seek declaratory and injunctive relief . . . and to recover
restitution. . . .[2]
“COUNT II
“Intentional Interference with Advantageous Relations
“The Defendant’s conduct as set forth above in failing to remit the total proceeds
of gratuities added to banquet bills to non-managerial service employees who have
In a separate section of the complaint headed “CLASS ACTION
2
ALLEGATIONS,” plaintiff alleges that “Plaintiff and class members have been deprived
of gratuities that were not remitted to them.” There follows a number of “questions of
law and facts common to the class” that continue to use the word “gratuity” instead of
“service charge.” Defendant does not dispute that plaintiff has standing to prosecute this
action under the UCL, even though section 351 does not provide for a private cause of
action. (See Lu v. Hawaiian Gardens Casino, Inc. (2010) 50 Cal. 4th 592, 598; Matoff v.
Brinker Restaurant Corp. (C.D. Cal. 2006) 439 F. Supp. 2d 1035, 1037–1038.)
3
worked in the defendant’s banquet department constitutes unlawful intentional
interference with the advantageous relationships that exist between these employees and
the defendant’s customers under state law.
“COUNT III
“Breach of Implied Contract
“The Defendant’s conduct as set forth above constitutes breach of implied contract
under state law. The defendant has breached an implied contract with its customers that
the employees would receive the proceeds of the gratuities, for which the service
employees are third party beneficiaries.
“COUNT IV
“Unjust Enrichment
“The Defendant’s conduct as set forth above constitutes unjust enrichment under
state common law.”
As noted, defendant interposed a general demurrer, and explained its objection to
each of plaintiff’s causes of action as follows: By reason of Searle v. Wyndham Internat.,
Inc. (2002) 102 Cal. App. 4th 1327 (Searle) and Garcia v. Four Points Sheraton LAX
(2010) 188 Cal. App. 4th 364 (Garcia), “Plaintiff fails to state a [cause of action] because
a mandatory service charge which is automatically added to a customer’s bill and which a
customer is required to pay, is not a gratuity as a matter of law.” (Italics added.)
Defendant elaborated: “Simply put, each of the four causes of action in the Complaint is
predicated on a claim that is contrary to California law—specifically that the mandatory
service charges Defendant adds to customers’ bills are gratuities that must be distributed
to its servers. But, as a matter of settled California law, mandatory service charges, such
as those alleged to have been charged by Defendant, are not gratuities, and thus need not
be disseminated to employees as required for tips and other gratuities. [Citations.]
Accordingly, none of the causes in the Complaint states facts sufficient to constitute a
valid cause of action. . . . Further, because the critical flaw in Plaintiff’s Complaint
cannot be cured by amendment, Defendant submits that the Complaint must be dismissed
without leave to amend.” (Fns. omitted.)
4
The trial court heard argument on whether Searle and Garcia—identified by the
demurrer as the “settled California law”—did indeed foreclose liability. Concluding “I
have no choice but to follow Garcia and Searle,” the court determined defendant was not
violating section 351. Accepting defendant’s argument that the alleged statutory
violation was the predicate for each of plaintiff’s causes of action, the trial court
sustained defendant’s general demurrer to the entire complaint. Plaintiff appeals from
that ruling.3
In our original opinion, which was not certified for publication, we reversed.
Defendant filed a petition for rehearing, raising a number of points. We also received a
letter from the Labor Commissioner advising that the issue of whether a service charge
may be deemed a gratuity for purposes of section 351 is a matter of “significant
importance to service workers” and “continuing public interest,” warranting publication
of the opinion. We granted rehearing to examine the issue more fully.
3
Although plaintiff purports to appeal from a “judgment of dismissal after an
order sustaining a dismissal,” the record and the register of actions establish that only the
order sustaining the demurrer was ever filed or entered. That order is not itself
appealable (I. J. Weinrot & Son, Inc. v. Jackson (1985) 40 Cal. 3d 327, 331), but it may be
reviewed on appeal from an ensuing judgment or order of dismissal. (Code Civ. Proc.,
§ 906; Jennings v. Marralle (1994) 8 Cal. 4th 121, 128.) Nevertheless, “[t]he fact that no
judgment of dismissal was entered on the order sustaining the demurrer does not present
an insurmountable obstacle to the appeal.” (Shepardson v. McLellan (1963) 59 Cal. 2d
83, 88.) It would be inefficient to dismiss the appeal, order the trial court to enter a
judgment of dismissal on the sustained demurrer, and then permit a subsequent appeal
from the dismissal. (Ibid.) Instead, as the parties treat the order as a judgment and the
appeal as properly before us, we “deem[] the order sustaining the demurrer to incorporate
a judgment of dismissal and interpret[] plaintiff’s notice of appeal as applying to such
dismissal.” (Federer v. County of Sacramento (1983) 141 Cal. App. 3d 184, 185, citing
this court’s decision in Bellah v. Greenson (1978) 81 Cal. App. 3d 614; cf. Estate of Dito
(2011) 198 Cal. App. 4th 791, 799–800 [“[W]here it is clear the court intended to entirely
dispose of the action, we are empowered to amend the order to make it an appealable
judgment of dismissal”].)
5
DISCUSSION
Standard Of Review
The scope of review for a general demurrer sustained without leave to amend is
governed by established principles: Our review is de novo. We accept as true, and
liberally construe, all properly pleaded allegations of material fact, as well those facts
which may be implied or reasonably inferred from those allegations. (Guerrero v.
Superior Court (2013) 213 Cal. App. 4th 912, 925.) Because such factual allegations
“however odd or improbable” (Potter v. Arizona So. Coach Lines, Inc. (1988) 202
Cal. App. 3d 126, 130–131) are to be accepted, “ ‘ “the question of plaintiff’s ability to
prove these allegations, or the possible difficulty in making such proof does not concern
the reviewing court.” ’ ” (Quelimane v. Stewart Title Guaranty Co. (1998) 19 Cal. 4th 26,
47.) “[A]ny particular count which is well pleaded will not be affected by defects in a
separate cause of action, so long as inconsistent or antagonistic facts are not pled.”
(Longshore v. County of Ventura (1979) 25 Cal. 3d 14, 21–22.)
On the other hand, we do not accept contentions, deductions, or conclusions of
fact or law. (Strawn v. Morris, Polich & Purdy, LLP (2019) 30 Cal.App.5th 1087, 1094.)
Similarly, although we permit some latitude to “ ‘the accuracy with which [the plaintiff]
describes the defendant’s conduct’ ” (Quelimane v. Stewart Title Guaranty Co., supra,
19 Cal. 4th 26, 47), we are not bound to respect a pleader’s “legal characterization” of
events or transactions. (Morris v. Redwood Empire Bancorp (2005) 128 Cal. App. 4th
1305, 1314.) Our sole consideration is an issue of law—whether the plaintiff’s complaint
is sufficient “to state a cause of action under any legal theory.” (King v. CompPartners,
Inc. (2018) 5 Cal.5th 1039, 1050; Lee v. Hanley (2015) 61 Cal. 4th 1225, 1230.) Stated
another way, the complaint “survives a general demurrer insofar as its states, however
inartfully, facts disclosing some right to relief.” (Longshore v. County of Ventura, supra,
25 Cal. 3d 14, 22; see Frances T. v. Village Green Owners Assn. (1986) 42 Cal. 3d 490,
496, fn. 2 [“ ‘plaintiff need only plead facts showing that [she] may be entitled to some
relief’ ”].)
6
The Nature Of “Gratuity” Under Section 351
“Gratuity” is statutorily defined to “ include[] any tip, gratuity, money, or part
thereof that has been paid or given to or left for an employee by a patron of a business
over and above the actual amount due the business for services rendered or for goods,
food, drink, or articles sold or served to the patron.” (§ 350, subd. (e).)
Section 351 provides: “No employer or agent[4] shall collect, take, or receive any
gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or
deduct any amount from wages due an employee on account of a gratuity, or require an
employee to credit the amount, or any part thereof, of a gratuity against and as a part of
the wages due the employee from the employer. Every gratuity is hereby declared to be
the sole property of the employee or employees to whom it was paid, given, or left for.
An employer that permits patrons to pay gratuities by credit card shall pay the employees
the full amount of the gratuity that the patron indicated on the credit card slip, without
any deductions for any credit card payment processing fees or costs that may be charged
to the employer by the credit card company. Payment of gratuities made by patrons using
credit cards shall be made to the employees not later than the next regular payday
following the date the patron authorized the credit card payment.”
4
“ ‘Agent’ means every person other than the employer having the authority to
hire or discharge any employee or supervise, direct, or control the acts of employees.”
(§ 350, subd. (d).) It is clear from the tip pool decisions (see fn. 6, post), that an
employer who establishes a gratuity pool cannot require, or allow, that any portion of it
go to persons who qualify as the employer’s agent. (Jameson v. Five Feet Restaurant,
Inc. (2003) 107 Cal. App. 4th 138, 143–145; accord, Budrow v. Dave & Buster’s of
California, Inc. (2009) 171 Cal. App. 4th 875, 878 [“Section 351 would be violated if
management collected any part of the tip”].) However, an employee who also qualifies
as an agent can keep tips left specifically for that employee by a customer. (See Chau v.
Starbucks Corp. (2009) 174 Cal. App. 4th 688, 698 [“The code section does not provide
that merely because an employee falls within the definition of an ‘agent’. . . , an employer
must bar that employee from retaining a tip that was given to him by a customer for
services provided to the customer. . . . Under this provision, an employer must permit
and employee (without regard to the employee’s status) to keep a tip ‘paid given to or left
for’ that employee by a customer”].)
7
“The Legislature wanted to protect employees from employers who used their
positions to unfairly command a share of the employee’s tip.” (Chau v. Starbucks Corp.,
supra, 174 Cal. App. 4th 692, 696, 699 [“section 351 was enacted to prevent an employer
from pressuring an employee to give the employer tips left for the employee”].) The
purpose of section 351 is to prevent employers from using any gratuity-related practice
which reduces an employee’s wages, or appropriates monies belonging to employees,
practices which are condemned as a “fraud upon the public.” (§ 356; see Henning v.
Industrial Welfare Com. (1988) 46 Cal. 3d 1262, 1274; Searle, supra, 102 Cal. App. 4th
1327, 1332.) The language of section 351 in several ways reflects the Legislature’s
insistence that a gratuity is indivisible, inalienable and “the sole property of the employee
or employees to whom it was paid, given, or left for.” Even in our increasingly cashless
society, an employer is commanded to “pay the employees the full amount of the gratuity
that the patron indicated on the credit card slip.” (§ 351.)
The Indefinite Nature of a “Service Charge”
The terms “tip,” “gratuity,” and “service charge” are commonly used as if they are
interchangeable synonyms. (E.g., Cal. Code Regs., tit. 18, § 1603(h).) Many other states
expressly use them all in measures that serve the same function as section 351.5
However, investigation demonstrates that “service charge” is a protean term of no fixed
meaning.
Black’s defines service charge as “A charge assessed for performing a service.”
(Black’s Law Dict. (10th ed. 2014) p. 1576, col. 2.) This tautological imprecision is
hardly helpful, but it is representative. (See, e.g., Oxford Eng. Dict. “service charge”
5
See, e.g., In re Alleged Labor Law Violation of Chafoulias Mgmt. Co.
(Minn.Ct.App. 1997) 572 N.W.2d 326 [statute and explanatory regulation]; Tenn. Code
Ann., § 50-2-107. Hawaii has a statute unequivocally declaring that a service charge by
“[a]ny hotel or restaurant . . . for the sale of food or beverage services” is “tip income”
which shall be distributed “directly to its employees” unless the establishment has
“clearly disclose[d] to the purchaser of the services that the service charge is being used
to pay for costs or expenses other than wages and tips of employees.” (Hawaii Rev. Stat.
§ 481B-14, construed in Davis v. Four Seasons Hotel Ltd. (Hawaii 2010) 228 P.3d 303.)
8
OED Online, Oxford University Press (June 2017) [www.oed.com/viewEntry 176678 [as
of Oct. 29, 2019] (OED) [“a charge made . . . for services rendered”]; Webster’s 10th
Collegiate Dict. (1993) p. 1067, col. 2 [“a fee charged for a particular service”].) Viewed
in isolation, “service charge” is an amorphous, shapeless concept. It only assumes
meaning from the surrounding context.
For example, in the context of retail installment contracts, it commonly means
interest on an unpaid installment (Dickey v. Bank of Clarksdale (Miss. 1938) 184 So.
314; TruServ Corp. v. Morgan’s Tool & Supply Co., Inc. (Pa. 2012) 39 A.3d 253;
Michigan Pipe & Valve-Lansing, Inc. v. Hebeler Enterprises, Inc. (Mich.App. 2011) 808
N.W.2d 323; Kenworthy v. Bolin (Wash.App. 1977) 564 P.2d 835); but if interest is
stated separately, it can be viewed as a late fee. (Roy A. Miller & Sons, Inc. v. Industrial
Hardwoods Corp. (Ind.App. 2002) 775 N.E.2d. 1168.) In this context, the service charge
would appear to be a cost for delayed payment of the debt principal.
In the context of public utilities, a service charge is a fee charged for commencing,
maintaining, or discontinuing gas, electricity, water, etc. (Gov. Code, § 54346.2;
Brooktrails Township Community Services Dist. v. Board of Supervisors of Mendocino
County (2013) 218 Cal. App. 4th 195; Craig v. City of Macon (Mo. 1976) 543 S.W.2d
772; Mountain Cable Co. v. Department of Taxes (Vt. 1998) 721 A.2d 507; Roanoke v.
Fisher (Va. 1952) 70 S.E.2d 274; cf. Gov. Code, § 53056 [regulating amount of service
charge by cable television system]; In re Vista Marketing Group Ltd. (Bankr. N.D. Ill.
2016) 557 B.R. 630.) In this context, the service charge would appear to represent a
labor cost.
California pays particular attention to use of service charges to evade statutory
commands or duties. For example, “ ‘ “A lender is not prohibited from charging an extra
and reasonable amount for incidental services, expenses or risk additional to the lawful
interest other than for the loan of money. He may make a reasonable charge for
investigating, arranging, negotiating, brokering, making, servicing, collecting and
enforcing his obligation,” ’ ” so long as the “service charge” is not a subterfuge for
evading usury limits. (Forte v. Nolfi (1972) 25 Cal. App. 3d 656, 681, quoting Klett v.
9
Security Acceptance Co. (1952) 38 Cal. 2d 770, 787.) An insurer is allowed similar
latitude so long as it is not using a service charge to inflate the premium. (Troyk v.
Farmers Group, Inc. (2009) 171 Cal. App. 4th 1305, 1324–1325.) And every credit card
company and retailer “who fails to correct a billing error” within the statutory period
“shall not be entitled to . . . any interest, finance charges, service charges, or other
charges.” (Civ. Code, §§ 1747.50, subd. (b) [credit card issuer], 1747.60, subd. (b)
[retailers].)
In short, simply calling something a “service charge” hardly ever explains what it
is—or why it is being imposed.
A decade ago, this court considered the scope of a municipal hotel occupancy
statute that taxed the services and accommodations accompanying the use and possession
of the hotel room. We noted: “Just what qualifies as ‘services’ within the hotel context
does not appear to have ever been addressed in a reported California decision. Food and
drink would obviously appear to be included, were it not for specific exemptions under
state law. [Citations.] Beyond that, however, ‘services’ would appear to be that vast
residuum of amenities offered or made available to guests, limited only by the
imagination—or the nerve—of hoteliers to charge extra. Use of a barber or hairdresser
would likely qualify, as would a spa or gym facilities. So too the provision of business-
related needs such as conference rooms, stenographic/copying resources, specialized
communication equipment, or Wi–Fi access.” (Batt v. City and County of San Francisco
(2010) 184 Cal. App. 4th 163, 173.) If the concept of taxable “services” can be this broad,
the potential scope for “charges” on those services would logically be equally
expandable.
Thus, depending upon how one chooses to read section 350, a mandatory service
charge could be seen as either a sum paid by the customer “over and above the actual
amount due . . . for . . . food [and] drink . . . sold . . . to the patron,” or included in “the
10
actual amount due . . . for . . . services rendered . . . for . . . food [and] drink . . . served to
the patron.” (§ 350, subd. (e).)6
Given that the context here also involves the provision of food and drink, the
restaurant tip pool decisions are an obvious point of reference,7 one to which we shall
return. At this point it is appropriate to consider the two decisions deemed controlling by
the trial court, both of which involved tipping, compulsion, and service charges.
Searle And Garcia
As previously noted, the trial court believed “I have no choice but to follow
Garcia and Searle,” and thus those decisions put plaintiff out of court. Given this
perceived importance, the decisions warrant close examination.
In Searle, a San Diego hotel imposed a service charge of 17 percent to every room
service order. The bill presented with each room service order set out the amount of the
order itself, the 17 percent service charge, a three dollar “room delivery charge,” and had
“a blank line for a tip or gratuity.” Searle, who had spent a night at the hotel, alleged that
the hotel’s room service billing practice was deceptive “because guests are not advised
the service charge is in fact a gratuity paid to the server. Searle also contends the service
6
This may reflect the malleable nature of what constitutes a service charge. In
this connection we note that the full definition of service charge in the Oxford English
Dictionary adopts the first approach—“a charge made (additional to that for the food,
etc.) for services rendered, esp. for serviced in a hotel or restaurant.” (OED,
[www.oed.com/viewEntry 176678 [as of Oct. 29, 2019], italics added.)
7
Commencing with Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal. App. 3d
1062, 1068, the validity of restaurant and food provider gratuities being pooled and then
distributed them among employees, was addressed in Jameson v. Five Feet Restaurant,
Inc., supra, 107 Cal. App. 4th 138, Budrow v. Dave & Buster’s of California, Inc., supra,
171 Cal. App. 4th 875, Etheridge v. Reins Internat. California, Inc. (2009) 172
Cal. App. 4th 908, Chau v. Starbucks Corp., supra, 174 Cal. App. 4th 688, and Avidor v.
Sutter’s Place, Inc. (2013) 212 Cal. App. 4th 1439. Together with Searle, Garcia, and
several federal district court decisions applying California law (see O’Connor v. Uber
Technologies, Inc. (N.D. Cal. 2014) 58 F. Supp. 3d 989; Matoff v. Brinker Restaurant
Corp., supra, 439 F. Supp. 2d 1035; Louie v. McCormick & Schmick Restaurant Corp.
(C.D. Cal. 2006) 460 F. Supp. 2d 1153), they constitute essentially the entire corpus of
recent caselaw addressing the scope and application of section 351.
11
charge is unfair because it compels guests to pay a gratuity, which Searle believes should
be entirely voluntary. Thus Searle allege[d] the hotel’s room service practices violate the
unfair competition law (UCL).” (Searle, supra, 102 Cal. App. 4th 1327, 1330–1331.) The
trial court concluded no deceptive practice was alleged, and the Court of Appeal agreed.
Section 351 does not feature prominently in the Searle opinion. The statute is
mentioned as codifying state policy that “ ‘ensure[s] that employees, not employers,
receive the full benefit of gratuities that patrons intend for the sole benefit of those
employees who serve them.’ ” (Searle, supra, 102 Cal. App. 4th 1327, 1332, quoting
Leighton v. Old Heidelberg, Ltd., supra, 219 Cal. App. 3d 1062, 1068.) The Court of
Appeal concluded the hotel’s billing practice was not an unfair one under the UCL:
“[O]ther than Labor Code section 351, we are not aware of any express regulation of
tipping on room service billing. Because [the hotel’s] practice is alleged to cause servers
to receive more in the way of tips than would otherwise occur, it plainly does not violate
the spirit or letter of Labor Code section 351.” (Searle, supra, 102 Cal. App. 4th 1327,
1333–1334.)
Reaching this conclusion, the court said this: “Searle argues that in imposing the
17 percent service charge and failing to disclose to guests that the service charge is paid
to the servers, Wyndham is acting unfairly in two respects: it is compelling payment of a
gratuity which should otherwise be entirely voluntary, and second it is tricking
consumers into paying servers more than they would otherwise provide by way of a tip.
The difficulty we have with this argument is its premise: that because the 17 percent
service charge is paid entirely to the server, we must therefore treat it as a gratuity.
Neither logic nor the customs and usages associated with tipping support such a
conclusion.” (Searle, supra, 102 Cal. App. 4th 1327, 1334.)
The court explained: “The . . . room service patron[] is given both clear notice the
service being offered comes at a hefty premium and the freedom to decline the
service. . . . [T]he hotel patron has no legitimate interest in what the hotel does with
the . . . service charge. The hotel is free to retain for itself the large premium, as well as
the service charge, or to remit all or some of the revenue to its employees. Because the
12
service charge is mandatory and because the hotel is free to do with the charge as it
pleases, the service charge is simply not a gratuity which is subject to the discretion of
the individual patron.
“Moreover, the hotel’s decision to compensate its room service servers by way of
the 17 percent service charge in no material way interferes with the patron’s reasonable
expectations with respect to the custom of tipping. As commentary, custom and Labor
Code section 351 make clear, tipping is solely a matter between patron and server. While
some patrons will care about what the server receives from his employer, others will not.
The curiosity of those who . . . want to know how much the server has in his pocket is
just that: curiosity. It is a curiosity about something, i.e., the server’s financial condition,
in which the tipper has no legitimate interest.
“In arguing that it is deceitful to fail to clearly notify hotel guests that the service
charge is paid to the server, Searle again assumes the patron has some right to know what
the hotel is paying the room service server. . . . [W]e are not willing to indulge the notion
that the custom of tipping somehow gives patrons the right to know how much a server is
being paid by his or her employer. In this situation the only obligation the hotel has to
the patron is the one codified in Labor Code section 351: an assurance that, however
large or small, the tip will go to the server, not the employer. Wyndham’s compensation
practices of course fully meet this obligation. In sum, in failing to advise its guests as to
how it compensates its employees, the hotel is not guilty of any deceit even under the
broad provisions of the UCL.” (Searle, supra, 102 Cal. App. 4th 1327, 1334–1335.)
Garcia involved a city ordinance (the Ordinance) that in plain effect directed
certain hotels to treat their mandatory service charges as owed “to workers who render
the services for which the charges have been collected.”8 (Garcia, supra, 188
8
Quoting parts of the Ordinance, the Garcia court summarized some of its
provisions: “Section 184.02 states in pertinent part: ‘Service Charges shall not be
retained by the Hotel Employer but shall be paid in the entirety by the Hotel Employer to
the Hotel Worker(s) performing services for the customers from whom the Service
Charges are collected.’ . . . Service charges collected for banquets or catered meetings
‘shall be paid equally to the Hotel Workers who actually work the banquet or catered
13
Cal. App. 4th 364, 370.) The plaintiffs in Garcia were service workers employed by some
of those hotels, who alleged that their employers “failed to compensate plaintiffs and
members of the putative class in the amount of the entire service charge.” (Id. at p. 372.)
The trial court sustained the hotels’ demurrer without leave to amend, and dismissed the
employees’ complaints, concluding that “the gratuity provisions preempted the
Ordinance” because the state statutes “set a ‘boundary between moneys which . . . belong
to the employees, individually or jointly’ and have ‘served as a bright-line distinguishing
the validity of competing claims (from business owner and worker) to moneys provided
by the customer.’ . . . [T]he ‘employee does not have any claim to ownership in
payments made by patrons which fall outside the definition of “gratuity.” The vice of the
Service Charge Ordinance is that it tries to do exactly this. It attempts to give the
employees an ownership interest in mandatory charges added by the hotel . . . .’ ” (Ibid.)
Garcia is a lengthy opinion, with numerous parts. It was also a comprehensive
defeat of the hotel employers’ broad-front strategy to overturn the Ordinance. The Court
meeting’; service charges collected for room service ‘shall be paid to the Hotel Workers
who actually deliver the food and beverage associated with the charge’; and service
charges collected for porterage services ‘shall be paid to the Hotel Workers who actually
carry the baggage associated with the charge.’ . . . [¶] A ‘service charge’ is defined in
the Ordinance as ‘all separately-designated amounts collected by a Hotel Employer from
customers that are for service by Hotel Workers, or are described in such a way that
customers might reasonably believe that the amounts are for those services, including but
not limited to those charges designated on receipts under the term “service charge,”
“delivery charge,” or “porterage charge.” ’ ” (Garcia, supra, 188 Cal. App. 4th 364,
375–376, fns. omitted.)
Some years later, the same Court of Appeal that decided Garcia examined the
legislative history of the Ordinance and determined that it was aimed at a specific
practice: “ ‘[P]atrons of the . . . hotels are often charged a “service charge” of
approximately twenty percent on their banquet fees. That charge is commonly and
understandably mistaken as a gratuity by the consumer, and thus no actual gratuity is
left.’ ” (Audio Visual Services Group, Inc. v. Superior Court (2015) 233 Cal. App. 4th
481, 494.) “As a result, hotel workers saw a decrease in their gratuities as customers
either reduced or eliminated gratuities they would otherwise have paid because they
assumed the service charge was paid to the worker.” (Id. at p. 493.)
14
of Appeal rejected the hotels’ contention that the Ordinance was preempted by state law
because the Ordinance “expressly contradict[ed] the Labor Code and impliedly enter[ed]
a field fully occupied by general state law.” (Garcia, supra, 188 Cal. App. 4th 364, 374.)
The court concluded there was no conflict or overlap because the state statutes did not
address service charges, while the Ordinance “is a purely local concern . . . aimed at
ensuring decent compensation for hotel service workers . . . .” (Id. at p. 381.) The court
also rejected arguments that the Ordinance was unconstitutionally vague or violated equal
protection. (Id. at pp. 381–389.) Finally, the court found there was no taking of the hotel
owners’ property because “the Ordinance does not operate upon or alter an identified
property interest,” but merely “reallocates hotels’ revenue from service charges to pay
compensation.” (Id. at p. 390.) In a telling phrase, the court noted: “A ‘service charge’
under the Ordinance might better be described in common parlance as a charge imposed
in lieu of gratuities.’ ” (Ibid.)
Searle and Garcia do involve mandatory “service charges” imposed in the context
of selling food and drink to the public—charges, we hasten to add, that were paid to
employees. But it is undeniable that the two opinions contain certain language that
cannot bring much comfort to plaintiff.
Defendant naturally finds support in this language in Searle: “[T]he patron has no
legitimate interest in what the hotel does with the service charge. The hotel is free to
retain for itself the large premium, as well as the service charge, or to remit all or some of
the revenue to its employees. Because the service charge is mandatory and because the
hotel is free to do with the charge as it pleases, the service charge is simply not a gratuity
which is subject to the discretion of the individual patron.” (Searle, supra, 102
Cal. App. 4th 1327, 1334–1335.) Even more understandably, defendant cannot too often
quote these words from Garcia: “A gratuity is not a service charge. A service charge is
a separately designated amount collected by a hotel from patrons that is part of the actual
amount due the hotel for services rendered, rather than something ‘over and above the
amount due.’ [Citation.] Thus, a service charge by definition is not a gratuity. The
15
Legislature has made clear that amounts due for services (which include service charges)
are not gratuities.” (Garcia, supra, 188 Cal. App. 4th 364, 377.)
We have looked long and hard at Searle and Garcia. The crux is, we believe, this
paragraph in Garcia: “Hotels contend the Ordinance transforms a service charge into a
gratuity because it is paid to the workers performing the services. Searle v. Wyndham
Internat., Inc., supra, 102 Cal. App. 4th 1327, 1334–1335 has rejected that argument. The
hotels contend the Ordinance’s treatment of service charges conflicts with the Labor
Code because the statutory definition of gratuity excludes employers’ property (service
charges). [Citation.] We reject the hotels’ argument.” (Garcia, supra, 188 Cal. App. 4th
364, 377.)
The sole argument made and addressed at pages 1334 and 1335 in the Searle
opinion (quoted above) was whether the Wyndham’s hotel room service charge was
actionable under the UCL. The Court of Appeal concluded in effect, “no harm, no foul.”
The customer would end up paying the charge regardless of what it was called, regardless
of why the hotel imposed it, and regardless of what the hotel did with it. The bottom line
was that the Wyndham’s internal accounting practice of treating the service charge as a
de facto gratuity for the employees was none of the customer’s business. The service
charge might look like a gratuity because it ultimately went from the customer to the
employee, but it was not a true gratuity, a gratuity for purposes of sections 350 and 351,
because it was not rendered “subject to the discretion of the individual patron.” (Searle,
supra, 102 Cal. App. 4th 1327, 1335.)
With this somewhat glancing and oblique reference to a tip/gratuity being purely
and exclusively voluntary, Searle was simply following the logic of Leighton v. Old
Heidelberg, Ltd., supra, 219 Cal. App. 3d 1062, the first of the tip pool decisions, and, at
the time, pretty much the only discussion on the subject of Labor Code gratuities. Hence
the reference to the hotel guest having “the freedom to decline the service.” (Searle,
supra, 102 Cal. App. 4th 1327, 1334.) Moreover, Searle could be distinguishable because
it did not involve what plaintiff’s complaint describes—the employer wrongfully keeping
part of service charge and wrongfully directing the remaining part to persons not
16
statutorily eligible to receive it. Most significantly, the patron here is alleged to have an
idea—if not the actual intent because “of the way these charges are depicted to
customers”—that the service charge willdinos “be remitted to the service staff.”
The service charge in Searle was paid to employees but the customer was not told
of this. Yet change two details—(1) suppose the hotel tells the patron that the service
charge will be remitted to the employees, thus relieving the patron of paying gratuities to
each individual employee, but in fact (2) the employer retains some or all of the service
charge. Such a scenario is reasonably close to what defendant is alleged to be doing. We
very much doubt that in this situation the Searle court would continue to maintain either
“that how and what a hotel pays its room service servers is a matter between the hotel and
the servers”—or that there was no deception. (Searle, supra, 102 Cal. App. 4th 1327,
1330.)
As for Garcia, how can there be any doubt after reading the sentences “A gratuity
is not a service charge” and “The Legislature has made clear that amounts due for
services (which include service charges) are not gratuities”? (Garcia, supra, 188
Cal. App. 4th 364, 377.) Logically, one would expect the court to strike down the
Ordinance because it not only ignored these principles, but, indeed, abolished them by
reclassifying a service charge as a gratuity, thereby legislatively transmuting the service
charge into what amounted to a mandatory gratuity. But the Garcia court upheld the
validity of the Ordinance, and revived the workers’ claim that the hotels were obligated
by the Ordinance to hand over the service charges collected but not distributed by the
hotels. In plain effect, the employees were deemed to have a property interest in the
“service charges” imposed by the hotels which the Ordinance declared to be gratuities,
and which must therefore be distributed to the employees.
Thus, if the Legislature had indeed “made clear” that service charges “are not
gratuities,” one would expect the Court of Appeal to go the other way and hold that the
Los Angeles City Council had no power to flout this distinction with the municipal ipse
dixit that the service charge was no longer “part of the amount due the hotel for services
rendered,” but was now to be regarded as a gratuity and thus the exclusive property of the
17
workers. Yet the Garcia court rebuffed the hotel-employers’ arguments to have the
Ordinance struck down as contrary to state law in the form of section 350 and 351, or as a
taking of their property.
Both Searle and Garcia, and this dispute, demonstrate that it all may come down
to what label is used and who gets to do the labelling. In Searle, it was the employer who
made the “service charge” into a gratuity. In Garcia, it was the city council that relabeled
the hotels’ “service charges” as gratuities and, like sections 350 and 351, mandated that
they go only to employees performing the service, not management. (See fn. 8, ante.) In
Searle the mandatory service charge was imposed by the employer, and the Court of
Appeal had no problem with accepting it as a gratuity in all but name. In Garcia what
the employer might call a service charge was legislatively reclassified as a gratuity, and
the Court of Appeal had no problem in accepting the reclassification and letting
aggrieved employees enforce it. The voluntary nature of a gratuity discussed in Searle is
thus incompatible with the actual results in Searle and Garcia, namely, allowing a
mandatory gratuity to stand.9 Neither Searle nor Garcia involved what we have here—an
employee who alleges that what the ballroom customer meant for employees to have is
being kept by the employer. Notwithstanding some of language found in the Searle and
Garcia opinions, in neither case did the court take money from the employees. We do
9
The notion of gratuity has clearly moved beyond the notion of some coins left
on the diner counter after a meal, which appears to have been the factual matrix in the
first modern decision to address sections 350 and 351. (See Leighton v. Old Heidelberg,
Ltd., supra, 219 Cal. App. 3d 1062, 1065 [“Plaintiff was hired as a waitress by defendant
restaurant . . . and terminated . . . for refusing to pool her tips with the busboys”]; cf. In re
Application of Farb (1918) 178 Cal. 592, 600 (dis. opn. of Richards, J.) [“In the
individual instance the offering is usually small”].) Not only are there the mandatory
gratuities seen in Searle and Garcia, they are frequently encountered in modern-day life.
For example, cruise ship passengers are routinely told that a daily charge will be added to
their room bill and will be used as a gratuity for the ship’s personnel. A small-print
notice is commonly found at the bottom of a menu advising that a group above a certain
size will have specified gratuity automatically added to the bill. Tourists have made their
peace with the service compris imposed in France and other parts of Europe. In short, the
notion of an involuntary gratuity has perhaps become more widespread and accepted than
in the past.
18
not believe the Searle court, or the Garcia court, or the Legislature, would accept or
approve the proposition that an employer should have the unfettered freedom of
definition if it might result in depriving employees of sums that otherwise might qualify
as gratuities. In short, what a court does is sometimes more significant than what it says.
In light of the foregoing, we decline to treat either Searle or Garcia, or both
together, as controlling. Neither, or both together, should be read, as defendant does, as
categorially establishing that what may be called a “service charge” by an employer can
never be a gratuity. Accordingly, plaintiff’s cause of action, for “statutory gratuity
violation” is not per se foreclosed by Searle and Garcia, as the trial court believed. We
now consider whether that cause of action makes out a claim for relief sufficient to
survive a general demurrer.
Plaintiff’s First Cause of Action
The gist of plaintiff’s complaint is unambiguous—defendant is pocketing money
that should go to its employees or directing it to persons ineligible to receive any part of
that money. As will be shown, such alleged conduct could state a claim to relief under a
number of labels.
Although we would ordinarily hesitate to accept plaintiff’s characterization of the
service charge as a gratuity because it smacks of a conclusion of fact or law (Strawn v.
Morris, Polich & Purdy, LLP, supra, 30 Cal.App.5th 1087, 1094; Morris v. Redwood
Empire Bancorp, supra, 128 Cal. App. 4th 1305, 1314), the same result can be achieved as
a reasonable interpretation of factual allegations that defendant’s service charge is
“depicted to customers” as intended for “the service staff,” and which “reasonably appear
to be . . . for the service staff.” Moreover, the service charge is “added . . . to . . . food
and beverage banquet bills.” These allegations must be given the meaning that they
derive from the context in which they are used. (Speegle v. Board of Fire Underwriters
(1946) 29 Cal. 2d 34, 42; National Automobile & Casualty Ins. Co. v. Payne (1968) 261
Cal. App. 2d 403, 408.) The context here is the commercial provision of food and drink.
That the service charge is added to the cost of food and drink logically makes it “over and
above the actual amount due . . . for . . . food [and] drink.” (§ 350, subd. (e).) The fair
19
inference from the allegations is that the service charge is plainly perceived by the
customer to be a gratuity, and is intended by the customer to be a gratuity. This, we note,
was the customer’s assumed intent in Garcia. (See Garcia, supra, 188 Cal. App. 4th
364, 377 [“Hotel patrons assume the service charges are paid to the workers performing
the services,” summarizing statutory language].) An equally fair inference is that the
customer would not intend a gratuity to be pocketed by defendant.
“We assume, as we must because this case is before us at the demurrer stage, that
[plaintiff] has alleged conduct that could be unlawful, unfair or fraudulent.” (Congress of
Cal. Seniors v. Catholic Healthcare West (2001) 87 Cal. App. 4th 491, 495; accord, Coast
Plaza Doctors Hospital v. UHP Healthcare (2002) 105 Cal. App. 4th 693, 699.) There is
no problem with plaintiff acting on behalf of her fellow servers, given that a collective
gratuity is no novelty in this context, and indeed is the predicate for the entire line of tip
pool decisions. (See Chau v. Starbucks Corp., supra, 174 Cal. App. 4th 688, 692
[“Collective tipping is the norm”].)
In her complaint, plaintiff makes a clear distinction between “managers and other
non-service employees” and “non-managerial” employees. Although the complaint does
not define either of these terms, it is not hard to discern what plaintiff means: non-
managerial employees are those “who serve the food and beverages,” work that is not
done by managers. We construe the allegations of “managers or . . . non-service
employees” as meaning agents, who are prohibited from receiving any part of a gratuity.
(See fn. 4, ante.) Additionally, as for present purposes defendant’s service charge is to be
treated as a gratuity, the allegation that defendant is “retaining for itself a portion” means
that defendant is thus contravening sections 350 and 351 in two distinct ways:
(1) keeping some of it, and (2) distributing some of it to persons who are not supposed to
get any part of it.
The gravamen of plaintiff’s claim rests upon conduct or a practice that our
Supreme Court has noted may be tantamount to conversion. (Cf. Lu v. Hawaiian
Gardens Casino, Inc., supra, 50 Cal.4th at 592, 603–604 [“To the extent that an
employee may be entitled to certain misappropriated gratuities, we see no apparent
20
reason why other remedies, such as a common law action for conversion, may not be
available”].) Moreover, as will be shown, defendant’s practice may support a cause of
action for restitution or unjust enrichment.
Plaintiff alleges there is a custom “in the hospitality industry” to treat sums
designated as “service charges” as gratuities for employees. For present purposes, we
accept the existence of such an industry custom, however inartfully or inadequately
alleged. (E.g., McConnell v. Merrill Lynch, Pierce, Fenner & Smith, Inc. (1978)
21 Cal. 3d 365, 382 [“custom is established by the allegations of the . . . complaint”];
Tenet Healthsystem Desert, Inc. v. Blue Cross of California (2016) 245 Cal. App. 4th 821,
842–843; cf. Shaw v. Cal. Dept. of Alcoholic Beverage Control (9th Cir. 1986) 788 F.2d
600, 610 [“The plaintiffs need not specifically allege a custom or policy; it is enough if
the custom or policy can be inferred from the allegations of the complaint”].)
In its brief, and at oral argument, defendant emphasized that tipping has been
traditionally thought of as a voluntary bilateral transaction between the patron of a
commercial establishment and the employee of the establishment. Moreover, there are
decisions treating the patron’s intent as unascertainable, if not irrelevant. (See
Leighton v. Old Heidelberg, Ltd., supra, 219 Cal. App. 3d 1062, 1069 [referring to “the
near impossibility of being able to determine the intent of departed diners in leaving a
tip”], quoted with approval in Avidor v. Sutter’s Place, Inc., supra, 212 Cal. App. 4th
1439, 1446–1447 & fn. 2, 1448 [“customer intent is not relevant”]; Etheridge v. Reins
Internat. California, Inc., supra, 172 Cal. App. 4th 908, 919–920; Budrow v. Dave &
Buster’s of California, Inc., supra, 171 Cal. App. 4th 875m, 880, fn. 4.) But the traditional
definition of gratuity may be changing.
It is, for example, now accepted that the essential function of tip pools is a
collective gratuity. (See Chau v. Starbucks Corp., supra, 174 Cal. App. 4th 688, 692.)
And in that context, courts have not shied away from undertaking “a reasonable
assessment of the patrons’ intentions.” (Budrow v. Dave & Buster’s of California, Inc.,
supra, 171 Cal. App. 4th 875, 883.) One court called this the “principle of implied or
presumed customer intent” and the “implied ‘collective’ intent.” (Chau v. Starbucks
21
Corp., supra, 174 Cal. App. 4th 688, 703 [text & fn. 7].) The legislative body in Garcia
assumed it knew what was in patrons’ minds. Granted, most tipping involves modest
amounts. (See fn. 9, ante.) But the context here is not ordinary, because the sums
involved may be anything but modest. That being so, there almost certainly will be a
written contract, where certain terms and undertakings may be spelled out. The universe
of patrons may be small, and their intent vis-à-vis the mandatory “service charge” may be
more subject to discovery than that of ordinary restaurant diners.
On the other hand, the tip pool decisions accept that voluntary donative intent is
not decisive. An accepted element of coercion may enter when a third party—the
employer—imposes a mandatory practice requiring employees to share gratuities
voluntarily made by customers. The customer may intend the gratuity left to go only to
the individual who personally served him or her at the table, but the employer’s tip pool
sharing policy will be enforced. In other words, the customer’s intent is not necessarily
dispositive. Or even consulted. (See the practices mentioned in fn. 9, ante.)
We are also mindful that Labor Code provisions concerning compensation and
working conditions are to be liberally construed in favor of employees. (E.g., Augustus v.
ABM Security Services, Inc. (2016) 2 Cal.5th 257, 262; McLean v. State of California
(2016) 1 Cal.5th 615, 622.) Both section 350 and section 351 define a gratuity as what is
“paid . . . for an employee by a patron.” This language does not preclude the possibility
that the payment may not be entirely voluntary in the mind of the patron.
We agree with Garcia that sections 350 and 351 are not the sole word on the
subject of gratuities, and thus do not preclude what is called a service charge being
treated as a gratuity. Collective tipping may be the result of private initiative (Searle) or
legislative command (Garcia). Plaintiff is attempting to establish that it can have yet
another source—the custom “in the hospitality industry” to treat sums designated as
“service charges” as gratuities for employees. In other words, custom or usage can serve
as a common law augmentation of sections 350 and 351. If true, defendant’s practice
would clearly appear to be at odds with the purpose of section 351, which is “ ‘to ensure
that employees, not employers, receive the full benefit of gratuities that patrons intend for
22
the sole benefit of those employees who serve them.’ ” (Searle, supra, 102 Cal. App. 4th
1327, 1332.) That purpose would not be served by allowing employers to take money
intended for employees simply by saying the customer has paid a “service charge.”
Plaintiff’s Other Causes of Action
In light of the foregoing, it remains only to briefly look at plaintiff’s other causes
of action.
The trial court concluded that plaintiff’s second cause of action, for “intentional
interference with advantageous relations,” and her third cause of action, for breach of
implied contract, were defective because “Our case law teaches that you need to show . . .
that that interference is done wrongfully. There’s no allegation here of . . . anything
being done wrongfully.” As just noted, the complaint is sufficient to make out a claim
that defendant’s “alleged conduct that could be unlawful, unfair . . . fraudulent.”
(Congress of Cal. Seniors v. Catholic Healthcare West, supra, 87 Cal. App. 4th 491, 495.)
Moreover, as already noted, the gravamen of plaintiff’s claim may amount to conversion,
which would thus easily qualify as “wrongful” for purposes of the second and third
causes of action. It will also be shown to support a claim for restitution. The
wrongfulness of plaintiff’s practice is the clear and obvious inference of plaintiff’s
complaint, which is sufficient here. (See Reeves v. Hanlon (2004) 33 Cal. 4th 1140, 1152
[“a plaintiff seeking to recover for interference with prospective economic advantage
must . . . plead . . . that the defendant engaged in an independently wrongful act . . . ‘that
is, if it is proscribed by some . . . statut[e] . . . .’ ”].)
The trial court concluded that, with respect to plaintiff’s fourth cause of action, for
unjust enrichment, “under California law, it’s not a cause of action.” True, there are
decisions to this effect (e.g., Melchior v. New Line Productions, Inc. (2003) 106
Cal. App. 4th 779, 793), but this Appellate District appears split on the issue. (See Dunkin
v. Boskey (2000) 82 Cal. App. 4th 171, 197 [recognizing cause of action]; Hirsch v. Bank
of America (2003) 107 Cal. App. 4th 708, 717, 721–722 [same]; McBride v. Boughton
(2004) 123 Cal. App. 4th 379, 387 [“Unjust enrichment is not a cause of action,” citing
Melchior & distinguishing Dunkin]; see also Johnson & Johnson, What Happened to
23
Unjust Enrichment in California The Deterioration of Equity in the California Courts
(2010) 44 Loyola L.A. L.Rev. 277, 279, 288 [unjust enrichment “is sometimes no longer
interpreted as a cause of action; rather it has been reduced to a light echo in remedial
analysis”], [Melchior “has no basis in California law”]; cf. Rest.3d Restitution & Unjust
Enrichment, § 1, com. e(3) [attacking “misconception . . . that restitution is essentially a
remedy”].)
The point is largely academic because this District has long taken the position that,
even if unjust enrichment does not describe an actual cause of action, the term is
“synonymous with restitution,” which can be a theory of recovery. (See Dinosaur
Development, Inc. v. White (1989) 216 Cal. App. 3d 1310, 1314–1315 [recognizing
possibility of restitution cause of action but concluding it was not made out in the
complaint]; Lauriedale Associates, Ltd. v. Wilson (1992) 7 Cal. App. 4th 1439 [same];
McBride v. Boughton, supra, 123 Cal. App. 4th 379, 387–388 [“we construe McBride’s
purported cause of action for unjust enrichment as an attempt to plead a cause of action
giving rise to a right of restitution”]; Rest.3d Restitution & Unjust Enrichment, § 1, com.
b [“In no instance does the fact or extent of liability in restitution depend on whether the
source of that liability is conceived or described as unjust enrichment”], com. c [“When
used in this Restatement . . . the terms ‘restitution’ and ‘unjust enrichment’ will generally
be treated as synonymous”].) This is accepted even by the courts which do not consider
unjust enrichment a proper cause of action. (See Prakashpalan v. Engstrom, Lipscomb &
Lack (2014) 223 Cal. App. 4th 1105, 1132; Melchior v. New Line Productions, Inc., supra,
106 Cal. App. 4th 779, 793.)
Thus, the actual title of plaintiff’s Count IV cannot be dispositive. This District
has also repeatedly accepted that “ ‘there is no particular form of pleading necessary to
invoke the doctrine’ of restitution.” (Dinosaur Development, Inc. v. White, supra, 216
Cal. App. 3d 1310, 1315; accord, Dunkin v. Boskey, supra, 82 Cal. App. 4th 171, 198, fn.
15.) It is particularly apt to hold this principle in mind because reviewing courts are more
concerned with the substance of the underlying allegations than how the plaintiff labels
the cause of action. (E.g., Quelimane v. Stewart Title Guaranty Co., supra, 19 Cal. 4th
24
at pp. 38–39; McBride v. Boughton, supra, 123 Cal. App. 4th 379, 387 [“we . . . ignor[e]
erroneous or confusing labels if the complaint pleads facts which would entitle the
plaintiff to relief”]; Porten v. University of San Francisco (1976) 64 Cal. App. 3d 825, 833
[“Mistaken labels and confusion of legal theory are not fatal . . . . An action cannot be
defeated merely because it is not properly named”].) Even if unjust enrichment is not to
be recognized as an independent stand-alone cause of action, plaintiff alleges she and her
fellow workers are entitled to restitution of the service charges wrongfully withheld from
them. Lastly, it must be remembered that the first cause of action was framed under the
authority of the UCL, which allows for restitution. (See Matoff v. Brinker Restaurant
Corp., supra, 439 F. Supp. 2d 1035, 1038–1039, citing Kraus v. Trinity Management
Services, Inc. (2000) 23 Cal. 4th 116, 126–127.)
As for plaintiff’s third cause of action for “Breach of Implied Contract,” this court
has noted that an implied contract “is simply another way of describing . . . restitution.”
(McBride v. Boughton, supra, 123 Cal.App.4th at p. 388, fn. 6.) Thus, given that
plaintiff’s third and fourth causes of action amount to the same thing—a claim for
restitution of monies defendant has improperly failed to distribute to employees—what
we have said with respect to Count IV is equally applicable to Count III.
The preceding discussion demonstrates that plaintiff’s complaint, while decidedly
skimpy, has allegations more than sufficient to make out both a claim to “some relief” in
her complaint. (King v. CompPartners, Inc., supra, 5 Cal.5th 1039, 1050; Longshore v.
County of Ventura, supra, 25 Cal. 3d 14, 22.)
Concluding Remarks
In the wake of Brinker Restaurant Corp. v. Superior Court (2012) 53 Cal. 4th
1004, and armed with the authorization of the Labor Code Private Attorneys General Act
of 2004 (§ 2698 et seq.), individual employees have brought class actions on behalf of
themselves and fellow employees, flooding the courts with so-called “wage and break”
cases, and related claims based on various provisions of the Labor Code that employers
are allegedly violating with the result of preventing employees from receiving the full
value of their wages and compensation due and owing. The numerous complaints of
25
unpaid minimum or overtime wages, delayed payment of wages owed at separation,
denied meal or rest periods, unreimbursed business-related expenses, and prohibited
bookkeeping practices constitute a “matter of continuing public interest” to the Labor
Commissioner. In her request for publication, the Labor Commissioner drew our
attention to the legislative findings behind the municipal ordinance in Garcia, the city
council determining it was necessary because hotel workers “ha[d] seen their income
decline, and ha[d] reported a reduction in the gratuities they receive from customers,
because . . . hotels ha[d] instituted a practice of add a mandatory service charge of ‘15%
to 20% of the bill for banquets and other large group events.’ ” (Garcia, supra, 188
Cal. App. 4th 364, 376–377; see also Audio Visual Services Group, Inc. v. Superior Court,
supra, 233 Cal. App. 4th 481, 493 [purpose of the Ordinance was “to ensure that . . . hotel
workers who relied on gratuities earned a living wage”].) Clearly, the Labor
Commissioner does not believe this situation is confined to downtown Los Angeles.10
DISPOSITION
The “Order Granting Defendant Merchant Exchange Productions, Inc.’s Demurrer
to Plaintiff’s Class Action Complaint” filed April 5, 2016, is amended by adding the
following paragraph: “Plaintiff’s complaint on file herein is dismissed.” As so modified,
the order/judgment is reversed. Plaintiff shall recover her costs on appeal.
10
This subject was recently the cover story in a national magazine. (See Samuels
& Burnley, Living on Tips (Sept. 2, 2019) TIME, p. 40 et seq.)
26
_________________________
Richman, Acting P.J.
We concur:
_________________________
Stewart, J.
_________________________
Miller, J.
O’Grady v. Merchant Exchange Productions, Inc. et al. (A148513)
27
Trial Court: San Francisco County Superior Court
Trial Judge: Honorable Harold E. Kahn
Attorney for Plaintiff and Appellant: Lichten & Liss-Riordan, Michael
Freedman, Matthew D. Carlson, Shannon
Liss-Riordan;
Attorney for Defendant and Respondent: Littler Mendelson, P.C., Joseph A.
Schwachter, Galen M. Lichtenstein.
28