Service charge

Service fees vs administrative fees

The Massachusetts Supreme Judicial Court ruled that a country club’s administrative fees that were referred to as “service charges” in certain documents should be paid to its employees accordingly. This should serve as a warning to Massachusetts employers to be cautious about how they refer to services.

This case revolves around a specific law of Massachusetts, Mass. Gen. Laws Ann. ch. 149, § 152A. This law provides that an employer who receives a gratuity from a client is required to distribute the total amount among his service employees in proportion to the service they provide. This law defines the term “service charge” as a fee charged to customers in lieu of a tip. This includes any charges designated as service charges, tips, gratuities, or any other charges that a customer can reasonably believe would be paid to an employee in addition to or in lieu of a tip. This means that any charges considered to be a service charge must be paid to the employees providing the service.

In this particular case, the defendant was a country club that organized events such as banquets serving food and drink. Whenever a patron asked to host an event, they would set out terms in a service contract with the club. This would establish the rates and payment schedules, and in this contract it would be specified that an additional 10% of the price of the event would be charged for a tip to be paid to staff and another 10% as an administrative fee. to pay. at the club. This would then be signed by the boss.

Once the events were completed, customers would receive a final invoice. However, unlike the original event contract, this bill placed the 10% administrative charge in a category identified as a service charge or simply as a service instead of directly identifying it.

This resulted in a lawsuit filed by banquet servers alleging that this designation of the fee as a service charge requires it to be paid to workers. Initially, this case was dismissed by the trial court, which ruled that the safe harbor provision in the law allows employers to charge an administrative fee in addition to or in place of a tip as long as it is sufficiently identified. The employees appealed the case, but the Court of Appeal upheld the trial court’s decision.

The plaintiffs further appealed the case to the Massachusetts Supreme Court, which ruled differently. The court concluded that the principle of contract law that maintains ambiguity in a contract must be opposed to its draftsman means that the onus was on the club to correctly identify the charges. In the present case, the defendant did not do so.

In addition, the description of the charge as a service charge in some documents prevents the defendant from benefiting from the Safe Harbor provision. This was particularly relevant as the invoice on which the charge was incorrectly identified was remitted at the end of events where it was most likely to affect the decision to tip customers. As such, the court overturned the decision and remitted it to the lower court for judgment in favor of the plaintiffs.