O'Grady v. Merchant Exchange Productions, Inc.Annotate this Case
O’Grady, a banquet server and bartender at Defendant’s San Francisco ballroom, brought a putative class action, challenging Defendant’s practice of automatically imposing a 21 percent “service charge” to every food and beverage banquet bill. Plaintiff claims part of the money collected as service charges is kept by Defendant, with the rest distributed to “managers and other non-service employees.” Plaintiff alleged that the service charge constituted a gratuity and that Defendant “failed to distribute the total proceeds of [these] gratuities to non-managerial banquet service employees” as required by Labor Code section 351, enforceable under the California Unfair Competition Law, Cal. Bus. & Prof. Code 17200. Plaintiff argued that It is typical in the hospitality industry that establishments impose gratuity charges in the range of 18- 22% of the food and beverage bill, so customers paying these charges reasonably believed they were gratuities to be paid to the service staff. The complaint also alleged “Intentional Interference with Advantageous Relations” and breach of implied contract. The court of appeal reversed the dismissal of the complaint. There is no categorical prohibition why what is called a service charge cannot also meet the statutory definition of a gratuity. Labor Code provisions concerning compensation and working conditions are to be liberally construed in favor of employees.