COURT HELD THAT A REASONABLE PERSON WOULD BELIEVE THAT DEFENDANTS' SERVICE CHARGE WAS IN LIEU OF A GRATUITY

Abbey Spanier is pleased to report that on January 10, 2012, the Supreme Court of the State of New York in Martin et al v. Restaurant Associates, et al., Index No. 532700/11 denied defendants’ motion to dismiss a class action for unlawful retention of gratuities pursuant to New York Labor Law (the “NYLL”), Article 6, § 196-d. In the first decision on a motion to dismiss a section 196-d claims since the New York Court of Appeals’ seminal decision in Samiento v. World Yacht Inc., 10 N.Y.3d 70 (2008), Alan D. Scheinkman, Presiding Justice of the Westchester County commercial division, held that defendants Restaurant Associates Events Corp. and Compass Group USA, Inc. violated Section 196-d by routinely imposing a percentage service charge (“Service Charge”) on patrons or customers for all food, drink and service labor provided at hundreds of catered prominent social events at venues in New York such as the American Museum of Natural History and Lincoln Center.  The court held that by creating and imposing the Service Charge, Defendants created “the prospect that a reasonable customer could for a belief that the service charge was in lieu of a gratuity.”

The Court noted that whether a reasonable customer would believe that a mandatory Service Charge was being collected in lieu of a gratuity is dependant upon the totality of the circumstances, and held that Plaintiffs’ Complaint clearly alleged that Defendants’ practices “led customers to reasonable believe that the service charge was in lieu of a gratuity” and their policies “had the effect of actively misleading customers in to believing that the service charge is a gratuity.” In finding that the complaint sufficiently pleaded a cause of action under Section 196-d the Court noted that Defendants prevented plaintiffs from discussing gratuities with customers “on pain of termination” and that it was Defendants who negotiated the terms of the catering contracts with customers and had the exclusive knowledge of the discussions, if any, regarding the Service Charge.

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