Tip Pooling in Casinos

The Second District Court of Appeal in Los Angeles has ruled that casinos may insist on tip pooling among their employees, but found that the Hawaiian Gardens Casino may have violated the ban on participation in tip pools by supervisors. Lu v. Hawaiian Gardens Casino, Inc., Case No. B194209 (Jan. 22, 2009). We previously wrote about tip pooling in this blog on July 6, 2008, in our report on the Starbucks settlement with its baristas.

Labor Code section 351 prohibits employers from taking tips or crediting tips toward minimum wage obligations. However, under a 1990 Court of Appeal decision, employers may insist that employees pool their tips so that all are treated fairly. Leighton v. Old Heidelberg, Ltd., 219 Cal.App.3d 1062 (1990). That decision explained: "To the contrary, the restaurant business has long accommodated this practice which, through custom and usage, has become an industry policy or standard, a "house rule and is with nearly all Restaurants," by which the restaurant employer, as part of the operation of his business and to ensure peace and harmony in employee relations, pools and distributes among those employees, who directly provide table service to a patron, the gratuity left by him, and enforces that policy as a condition of employment."

The Hawaiian Gardens Casino dealers argued in their class action lawsuit that the rule permitting tip pooling should not apply to them because the tips were handed directly to them, and were not intended to be left for all the employees in the casino who provided service. The court rejected the argument. "As in restaurants, a tip pool in a casino promotes good service among all of the employees who come in contact with the patron, which enhances the casino's reputation and increases its business."

However, that did not get the casino out of the lawsuit. There was evidence that some of those who participated in the tip pool acted in a supervisory capacity by participating in evaluations and by directing and advising dealers on their conduct. That would make such employees "agents" who are barred by section 351 from receiving any tip money.

Although there is no private right to sue under section 351, any violation of the statute may form the basis for a claim under the Unfair Competition Law, Business and Professions Code section 17200.

Criminal Background Questions

Although most employers would prefer not to hire workers with criminal records, there are restrictions on what applicants can be required to disclose. For example, Labor Code section 432.7 bars prospective employers from inquiring about arrests that did not lead to a conviction. And, Labor Code section 432.8 bars prospective employers from asking about convictions for certain drug offenses more than two years old.

For each violation, an applicant may recover actual damages or $200, whichever is greater. If the violation is intentional, the applicant may recover three times actual damages or $500, whichever is greater. Those easily available penalties have provided the basis for numerous class actions based on applications with banned questions. See the reports from Mitchell Silberberg & Knupp, Morgan Lewis and Sonnenschein Nath & Rosenthal.

One set of employers has a federal exemption from those restrictions. Under the Combat Methamphetamine Epidemic Act of 2005 amendment to the Controlled Substances Act (found at 21 U.S.C. section 830(e)(1)(G)), retail pharmacies may ask applicants for employment whether they have ever been convicted of any crime involving controlled substances, without regard to any restrictions imposed by California law. That provision helped Longs Drug Stores defeat a recent class action in the Court of Appeal. See Rankin v. Longs Drug Stores California, Inc., Case No. D052124 (Cal. Ct. App. Jan. 6, 2009).

Other types of employers should review their applications to make sure that they do not require applicants to disclose arrests or or marijuana drug convictions that are over two years old.

Pre-Employment Testing

Employers who want good employees who are able to perform their jobs often engage in some form of pre-employment testing -- a typing test, a personality test, a test that measures knowledge needed on the job, and so on. It should come as no surprise that disappointed applicants may challenge such tests as discriminatory.

Disability Law

The federal Americans with Disabilities Act and the California Fair Employment and Housing Act prohibit employers from requiring applicants to undergo medical examinations before an offer of employment is extended. Once the employer has made an offer, it may condition the start of work on submission to a medical examination that tests whether the employee can perform the job. A "medical examination" is a procedure or test that seeks information about an individual's physical or mental impairments and health, including vision tests, blood tests, blood pressure and cholesterol screening, range of motion tests and psychological tests designed to identify mental disorders or impairments. Examples of procedures that are not medical examinations (and are, therefore, allowed at the pre-employment stage) are: testing for illegal drugs, physical agility tests, tests of ability to perform actual job tasks and tests that measure personality traits such as honesty, preferences, and habits. The EEOC has published a guidance that discusses the rules.

Sometimes the distinction between a prohibited and a permitted examination is a fine one. In Karraker v. Rent-A-Center, Inc., 411 F.3d 831 (7th Cir. 2005), the employer had management applicants take the MMPI, a standard psychological test that considers where the subject falls on scales measuring depression, hypochondriasis, hysteria, paranoia and mania. Although the employer argued that it was only concerned with personality traits, the court of appeals ruled that the MMPI was a medical examination because it was designed to reveal mental illness. Read the full opinion here.

Disparate Impact Discrimination

Both Title VII of the Civil Rights Act of 1964 and the California Fair Employment and Housing Act prohibit disparate impact discrimination, which means the use of neutral tests or selection procedures that have the effect of disproportionately excluding persons based on race, color, religion, sex, or national origin or other protected characteristics, where the tests or selection procedures are not job-related and consistent with business necessity.

For example, the EEOC obtained a $3.3 million judgment on behalf of 52 female job applicants not hired because they failed a 7-minute strength test that required them to carry 35-pound weights back and forth, lifting them to heights of 35 and 65 inches. More than 95 percent of male applicants passed, but fewer than 40 percent of female applicants passed. Because the employer did not prove that the test was sufficiently representative of actual job performance in its sausage packing operation, it was liable for disparate impact discrimination. EEOC v. Dial Corp., 469 F.3d 735 (8th Cir. 2006).

In a landmark United States Supreme Court decision, the employer required applicants to have a high school diploma for a certain plant position. That policy disproportionately discriminated against African Americans because their rate of graduation was twelve percent compared to a rate of thirty-four percent for whites. Since the evidence did not establish that the requirement was significantly related to successful job performance, the employer was liable for disparate impact discrimination. Griggs v. Duke Power Co., 401 U.S. 424 (1971).

What You Should Do

1. Prepare a detailed job description before you begin the hiring process for any position.

2. If you are concerned about physical or mental requirements of a job, make those the subject of post-offer testing. Do not attempt to screen out applicants yourself based on strength or personality tests, Even though such tests may be permissible, it would be very easy for a disappointed applicant to claim that your testing had crossed over into an impermissible medical examination.

3. If you wish to use tests of knowledge or intelligence, or academic qualifications to screen out applicants, have a professional validate your screening criteria. If challenged, you will have to prove that the criteria are significantly related to successful job performance.

Employer New Year Resolutions

As the New Year begins, here are four suggestions for New Year resolutions to help reduce the risk of employment law liability during the coming year.

1. Prepare job descriptions for every position in your organization. The job description is the most important document in an employee's personnel file. It provides the basis for evaluation of performance. It is the foundation for determining disability and workers compensation issues. To get started, take a look at the MS Word templates for job descriptions on the Microsoft website.

2. Review the job duties of every exempt employee. In recent years, the greatest exposure to liability for employers has been in wage and hour class actions. The most important factor in the multi-million dollar verdicts and settlements is misclassification of nonexempt employees as exempt. You must decide whether or not to treat employees as exempt based on actual job duties not on whether they are paid a salary or by job title. If you need an incentive, the December 26, 2008 issue of "Daily Journal Verdicts and Settlements" reports the following recent settlements: $21 million by Edward D. Jones & Co., $11.2 million by SBC and AT&T, $8.5 million by Unisource, $5.4 million by Kaiser, $2.25 million by EMC and Legato Systems, $1.3 million by Valley Farm Transport, and $900,000 by E-Trade Securities. We discussed wage and hour compliance in a June 29, 2008 post to this blog.

3. Review changes to the FMLA. Congress and the Department of Labor made important changes to the Family and Medical Leave Act rules last year. There is a new form of leave for members of military families, and there are changes to the existing regulations. We discussed these changes in a December 9, 2008 post to this blog, with links to the new rules.

4. Make sure that you are complying with immigration laws. All indications are that the federal government will continue to insist on strict compliance with the laws that prohibit employment of workers who lack authorization to work in the United States. If you knowingly employ someone who lacks such authorization, you have committed a federal crime. To assure that your workplace is in compliance, follow the rules for the I-9 Form. We discussed immigration compliance in an August 3, 2009 post to this blog.