Both New York State law and federal law strictly limit an employer’s ability to retain a mandatory charge, like a delivery charge or service charge, that is a gratuity and belongs to the employees.

Under the New York Labor Law, no employer is permitted to retain any part of a “gratuity or of any charge purported to be a gratuity for an employee.” NYLL § 196-d. This includes “mandatory charges when it is shown that employers represented or allowed their customers to believe that the charges were in fact gratuities for their employers.” Samiento v. World Yacht INc., 10 N.Y.3d 70, 79, 81 (2008). The ultimate issue is therefore not what the employer intended when they used terms such as “delivery charge,” “service charge,” or “service fee,” but the meaning their customers attributed to them under the reasonable customer standard. That is, would the “reasonable customer” believe these charges to be a gratuity that the employees – not the employer – are keeping.

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