State Supreme Court hears tip sharing dispute

Tuesday, Oct. 12, 1999 | 11:26 a.m.

CARSON CITY -- An attorney for a group of food servers and bartenders told the Nevada Supreme Court Monday they were shortchanged nearly $100,000 a year in tips by the Reno Hilton.

Gary Pakele, representing the 16 employees in their suit, said the Hilton took 14.75 percent out of the total tips charged customers for banquets and distributed the money among four management executives such as the director of catering and the banquet manager.

Pakele said in some cases this doubled the salary of the executives who received part of the tokes, even though they never took part in the actual service of the customers.

But Scott Mahoney, attorney for the Hilton, argued no law was violated and there was no tip pooling agreement among the workers and the hotel-casino. If the law is unfair, it's up to the Legislature to change it, he said.

The practice existed from 1992 until 1996. According to court documents, the director of catering received $1,321 every two weeks as part of the share of the tips. Other employees received from $666 to $832 every two weeks. When the tip pooling was stopped, the four executives got pay raises.

The court took the arguments under study and is expected to rule later this year.

Justice Myron Leavitt made it clear he didn't like the policy. He asked Mahoney, "How can you take tips and give them to executives? That's a violation of statute."

Mahoney said the law does not prohibit supervisors from sharing in tips. The rationale, he said, is the belief that the managers plan a successful banquet. The pre-arranged gratuity is not just because the food and drinks arrive on time, he said.

"There is a lot of pre-event work," Mahoney said.

But Leavitt said, "They are not performing a service. I tip the waiter for service -- to keep a lot of water in my glass. I give a toke and I want it to go to the waitress."

The 16 employees filed suit in Reno but former District Judge Mills Lane issued a pre-trial summary judgment in favor of Hilton. The workers then appealed to the Supreme Court.

Included in the court records is a 1994 Hilton memo that other hotels did the same thing. For instance, the San Francisco Hilton charged a 15 percent gratuity on banquets, of which 3.75 percent went to management and 11.25 percent to the workers. The Las Vegas Hilton had a 17 percent tip added on the bill, of which about 2.3 percent went to management and 14.62 percent to the employees. In the examples given, only John Ascuaga's Nugget in Sparks allowed the serving employees to keep all of the 16 percent added tip.

Pakele, in his brief to the court, said Nevada law allows employers to impose tip distribution schemes as long as the employer does not receive a portion of the gratuities or a direct benefit therefrom. He said giving part of the tips to the catering executives allowed Hilton to hold down salaries. For instance, after the policy was stopped, the salary of the assistant director of catering rose from $34,367 to $62,000 to make up the difference of the tips lost.

But Mahoney said the Hilton was free to impose its own tip distribution plan. These workers were "at will" employees, he argued. As such, there was no contract on how the tips should be divided. And as long as the Hilton did not keep the tips, there was no violation of law.

The executives who received the extra tips were lower management, Mahoney said, adding the Hilton itself did not benefit. Mahoney said this issue "begs for judicial relief."