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Tuesday, January 21, 2014

Tips on the Rise... but Who Benefits?

After a night on the town, you decide to hire not a traditional taxi company, but rather a new and similar service provider that uses third-party private drivers operating their individually owned, unmarked cars and smart application payment technology.  The app says, “Gratuity is included.”  Would you expect the tips you give to go in full to the drivers or for the tips to be shared with the taxi-like company?  Probably the former, although tipping tactics and expectations seem to be changing.

The question of whether the drivers in the above situation have a viable claim to the full amount of the tips will soon be resolved in California in O’Connor v. Uber Techs, 2013 BL  338258 (N.D. Cal. Dec. 5, 2013).  After determining that no implied-in-fact contract can be said to exist between the drivers and the taxi-like company “Uber,” the court so far determined that Uber and its passengers may have entered into an implied agreement regarding the tips from which the drivers were ultimately intended to benefit as third parties to the contract between Uber and passengers.

In the USA, tipping is widely considered a fair way for service personnel to earn a more decent living than if they had to rely on base salaries.  This intersects with the current debate about whether the federal minimum wage should be increased.  According to recent CNN TV news, if salaries reflected the productivity levels of United States workers, the minimum salary should be $28/hr.  It is currently $7.25

But what about consumers?  Tipping seems to rising more rapidly than both salaries and inflation rates in general.  Not long ago (ten years or so), tipping 10% in restaurants was considered the norm, at least in California and parts of the Western USA.  Now, food servers, the drivers in the above case and undoubtedly others expect 20%; a 100% increase in ten years or so.  Many Los Angeles restaurants have begun to automatically add this 20% gratuity to their guest checks (some still leaving an additional line open for tips…).  In comparison, the average inflation rage was 2.5% per year over the past ten years.  During the 12-month period ending November 2013, inflation was 1.2%.  Of course, salaries may be a more accurate yardstick.  According to the Social Security Administration’s Average Wage Index, salaries increased by approximately 33% over the past ten years (approx. 3% from 2011 to 2012).

To be sure, service personnel and other workers deserve a decent income for their efforts in a wealthy, industrialized nation such as the USA.  The question is whether the burden of this should be placed on consumers in the form of more or less “hidden” costs such as tax and tips in somewhat uncertain amounts or whether the employers should be expected to more openly list the true bottom-line costs of their services as is the case in other nations.  A better route may be to increase the federal minimum salary to the much-discussed (e.g., here) “living wage.”  At a minimum, it would seem that all tips given should go to the workers and not be a mere way for companies to award themselves more money.

Myanna Dellinger

Assistant Professor of Law

Western State College of Law

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