Kawakami v. Kahala Hotel Investors, LLC. , 134 Haw. 352 ( 2014 )

*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
Electronically Filed
Supreme Court
SCWC-11-0000594
22-DEC-2014
09:13 AM
IN THE SUPREME COURT OF THE STATE OF HAWAI#I
---o0o---
JASON KAWAKAMI,
individually and on behalf of all others similarly situated,
Petitioner/Plaintiff-Appellant/Cross-Appellee,
vs.
KAHALA HOTEL INVESTORS, LLC, dba KAHALA HOTEL AND RESORT,
Respondent/Defendant-Appellee/Cross-Appellant.
SCWC-11-0000594
CERTIORARI TO THE INTERMEDIATE COURT OF APPEALS
(CAAP-11-0000594; CIVIL. NO. 08-1-2496)
December 22, 2014
RECKTENWALD, C.J., NAKAYAMA, McKENNA, POLLACK, AND WILSON, JJ.
OPINION OF THE COURT BY WILSON, J.
I. Introduction
In this case, we are once again confronted with alleged
violations of Hawaii’s hotel or restaurant service charge law,
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
Hawai#i Revised Statutes (“HRS”) § 481B-14 (2008).1
Specifically, we consider the following issue: Under HRS § 481B-
14, does a hotel or restaurant’s use of service charges to pay
its employees’ “wages” without disclosing such practice to its
customers constitute an unfair or deceptive act or practice in
the conduct of trade or commerce (“UDAP”) and/or an unfair method
of competition (“UMOC”) pursuant to HRS § 480-2 (2008). As
discussed below, we conclude in the affirmative.
Jason Kawakami (“Kawakami”) held his wedding reception
at the Kahala Hotel and Resort (“Kahala Hotel”) in July 2007.
Kahala Hotel collected a 19% service charge on the purchase of
food and beverages for his reception. Kahala Hotel did not
distribute the 19% service charge directly to its employees as
“tip income.” Instead, 15% of the service charge was retained by
Kahala Hotel as a “management share,” then reclassified and used
to pay for the banquet employees’ “wages.” No disclosure was
1
HRS § 481B-14 states:
Any hotel or restaurant that applies a service charge for
the sale of food or beverage services shall distribute the
service charge directly to its employees as tip income or
clearly disclose 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.
2
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
made to Kawakami that a portion of the service charge was used as
wages, rather than tip income.
Kawakami, individually and on behalf of all other
similarly situated individuals (“Plaintiff Class”) filed a
lawsuit in the Circuit Court of the First Circuit (“circuit
court”) alleging that Kahala Hotel violated HRS § 481B-14 when it
failed to either distribute the service charges directly to its
employees as tip income or disclose to the Plaintiff Class that
the service charges were being used to pay for costs or expenses
other than “wages and tips” of employees.
The circuit court2 held that pursuant to HRS § 481B-14,
the plaintiff customer is entitled to know that a portion of the
service charge would not be paid to employees as tip income, but
would, instead, become the property of Kahala Hotel to be used as
the hotel deemed appropriate. Specifically, the circuit court
held: “That the hotel decides to use its 15 percent share of the
service charge to offset employees’ wages, does not alter,
reduce, negate, or discharge the Defendant’s disclosure
obligations under HRS section 481 B-14.”
2
The Honorable Gary W.B. Chang presided.
3
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
The Intermediate Court of Appeals (“ICA”) disagreed.
In its March 25, 2014 Memorandum Opinion, the ICA held that
because the hotel had reclassified its 15% management share to
pay its banquet employees’ wages, Kahala Hotel was in compliance
with HRS § 481B-14 pursuant to this court’s interpretation of
“tip income” in Villon v. Marriott Hotel Services, Inc., 130
Hawai#i 130, 306 P.3d 175 (2013). The ICA thus concluded that no
disclosure was required.
On certiorari, Kawakami challenges the ICA’s conclusion
that HRS § 481B-14 does not mandate disclosure of service fees
used for wages.3
We hold that pursuant to HRS § 481B-14, a hotel or
restaurant that applies a service charge for food or beverage
services must either distribute the service charge directly as
tip income to the non-management employees who provided the food
3
Kawakami presented the following question on certiorari:
Whether the ICA gravely erred when it held that a hotel that
fails to: (1) distribute 100% of the service charge
collected directly to its employees as tip income, and (2)
fails to disclose to customers that it is retaining portions
of the service charge is nevertheless complying with HRS
§ 481B-14 if the hotel is "reclassifying" this money and
making an accounting adjustment crediting the retained
service charge against its preexisting wage and salary
obligations.
4
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
or beverage services, or disclose to its customers that the
service charges are not being distributed as tip income.
II. Background
Kahala Hotel generally levies a 19% or 20% service
charge for banquet events at the hotel in connection with the
purchase of food or beverages. The service charges are placed in
one fund. Pursuant to a Collective Bargaining Agreement (“CBA”)
between Kahala Hotel and Unite Here! Local 5, the union
representing Kahala Hotel employees, 85% of the service charges
are distributed to the employees as tip income. The CBA then
permits the hotel to retain the other 15% as the “management’s
share.” At the end of the month, this portion is reclassified to
offset Kahala Hotel’s wage obligations to its banquet employees.
Here, Kahala Hotel collected a 19% service charge from Kawakami
on the purchase of food and beverages for his wedding reception.
Kahala Hotel then retained 15% of the service charge as its
management share before reclassifying the charges to pay its
employees’ wages.
On December 3, 2008, Kawakami filed a lawsuit
individually and on behalf of the Plaintiff Class,4 which
4
The circuit court certified the class on January 12, 2010.
5
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
consisted of customers who paid a service charge to Kahala Hotel
in connection with the purchase of food or beverages. In the
Complaint, Kawakami alleged that Kahala Hotel charged customers a
“service charge” that was calculated as a percentage of the total
cost of food and beverage, typically ranging between 15% and 23%.
Kawakami alleged that Kahala Hotel failed to clearly disclose to
Kawakami and its other customers that Kahala Hotel was not
distributing a portion of the service charge to its employees and
in fact, retained that portion for itself.
In addition, Kawakami alleged that Kahala Hotel had a
policy and practice of retaining a portion of the service charges
and using this portion to pay managers and non-tipped employees
who did not serve or assist in serving food and beverages.
Kawakami alleged that such conduct was a direct violation of HRS
§ 481B-14 and thus, constituted a UDAP or UMOC pursuant to HRS §
480-2.
Kahala Hotel asserted that Kawakami was not informed
that the service charge was being used to pay for costs and
expenses other than wages and tips of employees because the
service charge was in fact being used to pay for the wages and
tips of banquet employees through its reclassification system.
6
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
A. Trial Court Proceedings
On August 19, 2009, Kawakami, on behalf of the
Plaintiff Class, filed a motion for summary judgment, arguing
that the failure to disclose the fact that part of the service
charge was not being distributed directly to its employees as tip
income was a violation of HRS § 481B-14, and thus, a per se UDAP
violation under HRS § 480-2.
On September 13, 2010, Kahala Hotel also filed a motion
for summary judgment. Kahala Hotel argued that because it
distributed all of the service charges it collected as employee
wages and tips, it was not required by statute to make any
disclosures to consumers; therefore, its practice did not violate
HRS § 481B-14.
Because neither summary judgment motion sought a
complete adjudication of all claims and defenses, the court
construed both motions as motions for partial summary judgment,
specifically addressing the construction of HRS § 481B-14. The
court then granted Kawakami’s motion for partial summary
judgment, agreeing with Kawakami’s interpretation of the statute.
The court reasoned that the CBA permitted the employer to treat
its 15% share of the service charge as its property, rather than
employee property. Thus, employees received their specified 85%
7
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
of the service charge as tip income; however, Kahala Hotel
reclassified the remaining 15% of the service charge as the
management share before distributing it as wages. The court
concluded that Kahala Hotel’s entitlement to, or use of, the 15%
management share did not violate HRS § 481B-14; failure to
disclose such use did.
The court held that based on the language of HRS §
481B-14 and its legislative history, the law required Kahala
Hotel to either distribute the service charge to its employees as
tip income, or make a disclosure of the purpose for which the
service charge was being used. The court explained: “The point
is that 15 percent of the service charge is not being paid as tip
income to employees, and the law entitles the customer to be
informed of that fact.” The court thus rejected Kahala Hotel’s
argument that disclosure was not required because Kahala Hotel
used its 15% of the service charge to pay wages.
A jury trial was held to determine the issue of
damages. At the close of Kawakami’s evidence, Kahala Hotel moved
for judgment as a matter of law (“JMOL”) on the basis that
Kawakami failed to provide any evidence regarding economic loss
or injury. Kahala Hotel renewed its motion at the close of its
own evidence. The circuit court denied both motions.
8
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
On December 17, 2010, the jury returned its verdict,
finding that Kahala Hotel’s failure to disclose that not all of
the service charges were directly distributed to its employees as
tip income was the legal cause of the injuries to the Plaintiff
Class. The jury awarded the Plaintiff Class $269,114.73, which
represented the management share of the service charges.
Following the verdict, Kahala Hotel again moved for JMOL, which
the court denied. On February 8, 2011, Kahala Hotel filed a
renewed motion for JMOL. The circuit court granted this fourth
JMOL motion noting that the record failed to establish 1) that
plaintiffs suffered any injury, and 2) the amount of plaintiffs’
damages. The court then issued its Final Judgment, which
effectively reversed the jury’s verdict, and entered judgment in
favor of Kahala Hotel.
B. Appeal to the Intermediate Court of Appeals
Both parties appealed to the ICA. Kawakami challenged
the circuit court’s determination that, as a matter of law,
Kawakami and the Plaintiff Class were not entitled to damages.
Specifically, in his appeal, Kawakami contended that the circuit
court erred in granting Kahala Hotel’s fourth motion for JMOL;
Kawakami argued there was substantial evidence of injury to
support the jury’s damages award. Kawakami also argued that the
9
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
circuit court erred in allowing Kahala Hotel to introduce
evidence of how it distributed its service charges, claiming that
such evidence was not relevant to the calculation of damages.
As discussed further below, the ICA did not address the issues
raised in Kawakami’s appeal, and affirmed judgment in favor of
Kahala Hotel on other grounds.
Kahala Hotel’s cross-appeal challenged the circuit
court’s summary judgment order entered in favor of Kawakami.
Kahala Hotel argued that the circuit court did not acknowledge
the plain language of the statute, and instead, relied on an
interpretation that renders void a material part of the statute.
Kahala Hotel contended that because it paid its 15% of the
service charge as “wages,” the payment was for “wages and tips”;
and, properly interpreted, HRS § 481B-14 permits Kahala Hotel’s
practice of using all of the collected service charges to pay
“wages and tips of employees” without any disclosure to the
customer.
In its March 25, 2014 Memorandum Opinion, the ICA
agreed with Kahala Hotel’s position regarding the interpretation
of the statute, and accordingly, vacated the circuit court’s
entry of summary judgment, directed entry of summary judgment in
favor of Kahala Hotel, and affirmed the circuit court’s Final
10
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
Judgment.5 Finding this determination dispositive, the ICA did
not address the issues raised by Kawakami in his appeal.
The ICA held that pursuant to Villon, 130 Hawai#i at
135, 306 P.3d at 180, “tip income” and “wages and tips” are
synonymous within the meaning of HRS § 481B-14; and a contrary
conclusion risked an “absurd result - the impossibility of
compliance.” Thus, the ICA held that although Kahala Hotel did
not distribute the service charge as “tip income,” it was
unnecessary to issue a disclosure to the customer because the
service charge was ultimately applied toward satisfying its wage
obligation to the employee.
The ICA recognized its decision contravened the
legislature’s intent to inform customers when service charges
were not paid as tips; however it concluded: “Even if the
construction we apply today does, in some circumstance, cause
unintended consequences, we are obliged to leave it to the
legislature to resolve the matter.”
5
The ICA noted that “[b]ecause the Final Judgment is consistent
with our resolution of [Kahala Hotel’s] cross-appeal, the judgment is
affirmed.”
11
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
III. Standard of Review
A motion for summary judgment is reviewed de novo,
under the same standard applied by the trial court. Gurrobat v.
HTH Corp., 133 Hawai#i 1, 14, 323 P.3d 792, 805 (2014).
“‘Summary judgment is appropriate if the pleadings, depositions,
answers to interrogatories, and admissions on file, together with
the affidavits, if any, show that there is no genuine issue as to
any material fact and that the moving party is entitled to a
judgment as a matter of law.’” Pac. Int’l Servs. Corp. v. Hurip,
76 Hawai#i 209, 213, 873 P.2d 88, 92 (1994) (quoting Kaapu v.
Aloha Tower Dev. Corp., 74 Haw. 365, 379, 846 P.2d 882, 888
(1993)).
IV. Discussion
On certiorari, Kawakami reiterates that HRS § 481B-14
requires Kahala Hotel to either pay all of the service charge to
its employees as tip income or, if it retains any portion, to
disclose its practice to its customers. Kawakami contends that
the trial court properly found that Kahala Hotel violated HRS §
481B-14 when it did not disclose that 100% of the service charges
paid by the Plaintiff Class were not paid to the employees who
served them. Kawakami argues that without any disclosure of this
practice, “Kahala Hotel misled customers into thinking that
12
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
servers received the service charge in full as tip income.” In
support, Kawakami cites this court’s decisions in Davis v. Four
Seasons Hotel Ltd., 122 Hawai#i 423, 228 P.3d 303 (2010), Villon,
Gurrobat, and HRS § 481B-14’s legislative history.
In its Response, Kahala Hotel offers a differing
interpretation of Villon, arguing that under Villon, the two
clauses in HRS § 481B-14 are synonymous. Under this view, “tip
income” is indistinguishable from “wages and tips.” Kahala Hotel
argues that because 100% of the service charges were used to pay
for wages of employees, there was no need to make a disclosure
under the statute. Kahala Hotel thus urges this court to
interpret the phrase “tip income” in the first clause of HRS §
481B-14 to include “wages.”
Kahala Hotel’s interpretation of HRS § 481B-14
contravenes what is now recognized by this court as the well-
settled duty of hotels and restaurants to either distribute the
entirety of the service charge directly to non-management banquet
employees who served the consumers as “tip income,” or to
disclose its practice of withholding the service charge so that a
well-informed consumer may choose to leave a tip for the
employees as a reward for their service.
13
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
A. The Legislature Intended the Phrase “Wages and Tips” To Mean
“Tip Income” Within the Meaning of HRS § 481B-14
The purpose of HRS § 481B-14 is to require hotels and
restaurants that apply a service charge for food or beverage
services, but do not distribute the charge directly to employees
as tip income, to advise customers that the service charge will
be used to pay for costs or expenses other than wages and tips of
employees.6 2000 Haw. Sess. Laws Act 16, at 21–22. This court
comprehensively expounded the legislative history of HRS § 481B-
14 in Villon.
In Villon, we explained that when the bill went to its
second and last House referral, the House Finance Committee
drafted a Standing Committee Report indicating that the purpose
of the bill was to require disclosure from hotels or restaurants
applying service charges that were not being distributed to its
employees:
[T]he purpose of the bill was to “prevent unfair and
deceptive business practices by requiring hotels or
restaurants that apply a service charge for the sale of food
or beverage, to disclose to the purchaser that the service
6
Initially, the proposed bill that would become HRS § 481B-14 did
not address the need to inform the customers when the employee did not receive
a portion of the tip or service charge. H.B. 2123, entitled, “‘A BILL FOR AN
ACT RELATING TO WAGES AND TIPS OF EMPLOYEES,’ sought only to ‘protect
employees who receive or may receive tips or gratuities during the course of
their employment from having these amounts withheld or credited to their
employers.’” Villon, 130 Hawai#i at 137, 306 P.3d at 182 (quoting H.B. 2123,
20th Leg., Reg. Sess. (2000)).
14
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
charge is being used to pay for costs or expenses other than
wages and tips of employees, if the employer does not
distribute the service charge to its employees. ”
Villon, 130 Hawai#i at 138, 306 P.3d at 183 (emphasis added)
(quoting H. Stand. Comm. Rep. No. 854–00, in 2000 House Journal,
at 1298). The House Finance Committee amended the bill by making
“‘technical, nonsubstantive amendments for purposes of clarity
and style’” by inserting the words “directly” and “as tip income”
to the first clause of the bill so as to read as follows: “‘Any
hotel or restaurant that applies a service charge for the sale of
food or beverage services shall distribute the service charge
directly to its employees as tip income . . . .’” Id. at 138-39,
306 P.3d at 183-84 (quoting H.B. 2123, H.D. 2, 20th Leg., Reg.
Sess. (2000)).
Similarly, the Senate Standing Committee Report
specifically explained that HRS § 481B-14’s purpose was to inform
customers if employees did not receive the intended service
charges:
“The purpose of this measure is to enhance consumer
protection with respect to service charges imposed by hotels
and restaurants on the sale of food and beverages.
....
Your Committee finds that it is generally understood that
service charges applied to the sale of food and beverages by
hotels and restaurants are levied in lieu of a voluntary
gratuity, and are distributed to the employees providing the
15
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
service. Therefore, most consumers do not tip for services
over and above the amounts they pay as a service charge.
Your Committee further finds that, contrary to the above
understanding, moneys collected as service charges are not
always distributed to the employees as gratuities and are
sometimes used to pay the employer’s administrative costs.
Therefore, the employee does not receive the money intended
as a gratuity by the customer, and the customer is misled
into believing that the employee has been rewarded for
providing good service.
This measure is intended to prevent consumers from being
misled about the application of moneys they pay as service
charges by requiring under the Unfair and Deceptive
Practices Act that a hotel or restaurant distribute moneys
paid by customers as service charges directly to its
employees as tip income, or disclose to the consumer that
the service charge is being used to pay for the employer's
costs or expenses, other than wages and tips . . . . ”
Id. at 139, 306 P.3d at 184 (alterations in original) (quoting S.
Stand. Comm. Rep. No. 3077, in 2000 Senate Journal, at 1286–87).
Thus, Villon’s extensive account of HRS § 481B-14’s
legislative history reveals that despite the legislature’s use of
the phrase, “wages and tips” in the statute, its subsequent
insertion of “tip income” was to clarify that the service charges
must be distributed to the employee as “tip income.” The
legislature specifically sought to meet consumer expectations
“that service charges applied to the sale of food and beverages
by hotels and restaurants are levied in lieu of voluntary
gratuity, and are distributed to the employees providing the
service”; an expectation that resulted in “most consumers [not
tipping] for services over and above the amounts they pay as a
16
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
service charge.” S. Stand. Comm. Rep. No. 3077, in 2000 Senate
Journal, at 1287. If the hotel or restaurant did not distribute
the service charges as “tip income,” the statute required
disclosure to the consumer. The insertion of the phrase “tip
income” reflects the legislature’s focus on ensuring that service
charges are distributed directly as “tips” in a manner that
protects consumers from being misled about the application of
moneys they pay as service charges.
Accordingly, for the purposes of enforcement under
Hawaii’s UDAP and UMOC provisions, the legislative history
supports a reading of the phrase “wages and tips” in the second
clause of HRS § 481B-14 to specifically mean “tip income,” rather
than “wages.”
B. Villon’s Holding Is Limited to the Enforcement of HRS §
481B-14 Under Hawaii’s “Withholding of Wages” Statute, HRS §
388-6
The ICA explicitly relies on Villon in its Memorandum
Opinion to conclude that the terms “tip income” and “wages and
tips” in HRS § 481B-14 synonymously bear the meaning “wages,”
concluding: “We need go no further than Villon’s determination
that ‘the plain language of HRS § 481B-14 expressly equates 100%
of a ‘service charge’ with [both] ‘tip income’ and ‘wages and
tips of employees.’” In so deciding, however, the ICA fails to
17
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
recognize that Villon’s holding is expressly limited to the
meaning of “compensation earned” under HRS § 388-6 (1993).
In Villon, the issue was whether tips and/or service
charges constitute “compensation earned” within the meaning of
HRS § 388-6, which bars withholding of “compensation earned”
unless authorized by the employee.7 The petitioner, Villon,
sought recovery pursuant to HRS § 388-6 for tips/service charges
withheld without his authorization by his employer, the defendant
hotel. The defendant hotel argued that the undisclosed amount of
service charges was not “compensation earned” within the meaning
of HRS § 388-6. Villon, 130 Hawai#i at 136, 306 P.3d at 181. We
rejected this argument, concluding that a service charge is
“compensation earned” either as “tip income” or “wages and tips
of employees.” Id. at 136-37, 306 P.3d at 181-82.
We concluded that under HRS § 388-6, service charges
are “compensation earned” by an employee because they are levied
upon the consumer based upon “‘labor or services rendered by an
7
HRS § 388-6 states in relevant part:
No employer may deduct, retain, or otherwise require to be
paid, any part or portion of any compensation earned by any
employee except where required by federal or state statute
or by court process or when such deductions or retentions
are authorized in writing by the employee . . . .
18
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
employee,’ usually in lieu of a traditional tip.” Id. at 135,
306 P.3d at 180 (quoting HRS § 388-1). Thus, “when a hotel or
restaurant distributes less than 100% of a service charge
directly to its employees without disclosing this fact to the
purchaser, the portion withheld constitutes ‘tip income,’
synonymously phrased within HRS § 481B–14 as ‘wages and tips of
employees.’” Id.
Unlike the instant case, which invokes Hawaii’s
consumer protection provisions, HRS §§ 480-2 and 480-13, for
violations of HRS § 481B-14, Villon involved a class action
lawsuit by hotel banquet employees invoking Hawaii’s wage payment
statutes. Villon addressed the employers’ authority to withhold
tips and service charges under HRS § 388-6, not whether the
employers were required to disclose the withholding to customers.
We explicitly held that, because HRS § 481B–14 defines service
charges as “tip income” and “wages and tips of employees,” the
term “wages” included service charges as tips or gratuities of
any kind “for the purpose of enforcement under HRS § 388-6[.]”
Villon, 130 Hawai#i at 135, 306 P.3d at 180 (emphasis added). We
did not address whether, under HRS § 481B-14, “tip income” means
“wages” for purposes of disclosure.
19
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
Throughout Villon, we explicitly differentiated the
phrase “wages and tips” in HRS § 481B-14 from the general term
“wages” as used in other provisions of the HRS. We explained
that although HRS § 387-1 (1993) defines “wages” to exclude “tips
or gratuities” of any kind, it “is solely for the purpose of
calculating the ‘tip credit’ under HRS § 387–2 (1993 & Supp.
2005), not for the purposes of allowing employers to withhold
‘service charges,’ ‘wages and tips of employees,’ and ‘tip
income,’ from employees under HRS § 388–6.” Villon, 130 Hawai#i
at 136, 306 P.3d at 181. Thus, we recognized that the term
“wages” bore a meaning directly related to the purpose of HRS §
388-6.
The ICA therefore erred in holding that Villon
supported a conclusion that because Kahala Hotel distributed 15%
of the service charges as “wages,” Kahala Hotel had satisfied HRS
§ 481B-14’s mandate to disclose to customers its use of service
charges for wages.
C. Use of Service Charges To Offset Wage Obligations Is
Analogous To Using Service Charges To Pay Administrative
Costs
Kahala Hotel’s undisclosed use of service charges to
pay wages of banquet employees conflicts with this court’s
decision in Gurrobat. In Gurrobat, the defendant argued that it
20
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
complied with HRS § 481B-14 because it distributed a portion of
the service charges to managerial employees involved in providing
banquet services to the consumers. 133 Hawai#i at 17, 323 P.3d
at 808. This court rejected the defendant’s argument, holding
that retaining a portion of service charges to supplement the
income of managerial employees is analogous to using the service
charges to pay the employer’s administrative costs. Id. We
concluded that such a practice violated HRS § 481B-14 because
hotels and restaurants are “required to distribute one-hundred
percent of service charge income to non-management service
employees who provided the services for which customers believed
they were tipping” or to disclose their retention of a portion of
the service charge to customers. Id. at 17-18, 323 P.3d at 808-
09 (second emphasis added).
In the instant case, Kahala Hotel similarly used the
service charges to pay the employer’s administrative costs, i.e.,
its wage obligations to its banquet employees. As explained by
Kahala Hotel’s controller, Khara Markham, the entirety of the
service charges are placed in one fund. Eighty-five percent of
the service charges are then distributed to the banquet
employees, while 15% of the service charges are “retained and at
the end of the month” reclassified to offset Kahala Hotel’s
21
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
“banquet wages.” Ms. Markham also stated that the 15% is not, in
fact, distributed to the employee as tip income; rather, “it’s
just taken as an offset.” In other words, 15% of the service
charges were used to offset the expense that the hotel incurs in
paying wages and salaries. This practice is virtually
indistinguishable from using the money to pay for an employer’s
administrative costs or expenses.
In Gurrobat, this court reiterated that the evolution
of HRS § 481B-14 primarily focused on the problem of the
“uninformed consumer[], who may not leave additional tips for the
service employees, mistakenly thinking that the service charge
they paid were tips.” 133 Hawai#i at 17, 323 P.3d at 808 (citing
Villon, 130 Hawai#i at 138, 306 P.3d at 183). We then noted that
toward the end of H.B. 2123’s passage, the legislature also
recognized that “‘moneys collected as service charges are not
always distributed to the employees as gratuities and are
sometimes used to pay the employer’s administrative costs’”;
therefore, the employee “‘does not receive the money intended as
a gratuity by the customer, and the customer is misled into
believing that the employee has been rewarded for providing good
service.’” Id. (quoting Villon, 130 Hawai#i at 139, 306 P.3d at
184). Thus, in Gurrobat, this court repeated its holding in
22
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
Villon that HRS § 481B-14 evinces a concern for both the
uninformed consumer as well as the employees who “‘may not be
receiving tips or gratuities from these service charges.’” Id.
(quoting Villon, 130 Hawai#i at 137, 306 P.3d at 182).
Accordingly, adopting an interpretation of HRS § 481B-
14 that permits a hotel to use service charges to offset its wage
obligations to its employees, without disclosure to the
consumers, would be directly contrary to this court’s holding in
Gurrobat. Gurrobat expressly reflects a concern that such a
practice negatively impacts both employees and consumers. The
employees are deprived of the extra income they would have earned
had the hotel distributed the entirety of the service charge as
“tip income” and, absent disclosure, consumers are misled into
believing the service charges are being used as a gratuity to
employees who provide the services for which customers believe
they are tipping.
V. Conclusion
For the foregoing reasons, we hold that the ICA erred
in holding that no disclosure to Kawakami was required because
Kahala Hotel had reclassified its management share of the service
charge to pay for its employees’ wages. Kahala Hotel failed to
comply with HRS § 481B-14’s mandate to either distribute the
23
*** FOR PUBLICATION IN WEST’S HAWAI #I REPORTS AND PACIFIC REPORTER ***
entirety of a service charge directly to its employees as “tip
income,” or to disclose to its consumers its practice of
retaining the service charge. The April 25, 2014 judgment of the
Intermediate Court of Appeals is vacated and the Circuit Court of
the First Circuit’s January 6, 2011 Order Granting Plaintiff’s
August 19, 2010 Motion for Summary Judgment is affirmed. We
remand the case to the ICA to address the issues raised by
Kawakami in his appeal.
John Francis Perkin and /s/ Mark E. Recktenwald
Brandee J.K. Faria
for petitioner /s/ Paula A. Nakayama
David J. Minkin and /s/ Sabrina S. McKenna
Dayna H. Kamimura-Ching
for respondent /s/ Richard W. Pollack
/s/ Michael D. Wilson
24