Yes, with limits. California courts have long held that Labor Code section 351 allows an employer-mandated tip pool among employees, at least in restaurants. What the statute forbids is the employer, or a manager acting as its agent, taking any part of the tips. Since January 1, 2026, the Labor Commissioner has had express authority to cite employers for tips taken or withheld. That puts the pool’s membership and the employer’s tip records at the center of any tip claim.
What does Labor Code section 351 prohibit?
Taking employees’ tips. Section 351(a) says “No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron,” and it also bars deducting from wages “on account of a gratuity” and requiring an employee to credit tips “against and as a part of the wages due the employee from the employer.”
The statute then states who owns the money. “Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for,” according to section 351(a). That’s why California employers can’t count tips toward the minimum wage.
“Gratuity” is defined broadly. Under section 350(e), it “includes any tip, gratuity, money, or part thereof that has been paid or given to or left for an employee by a patron of a business over and above the actual amount due the business for services rendered,” or for goods and food sold.
Is mandatory tip pooling allowed?
Generally, among the right employees. The Supreme Court of California summarized the case law in Lu v. Hawaiian Gardens Casino, Inc. (2010) 50 Cal.4th 592. It said several Courts of Appeal “have held that this prohibition, at least in the restaurant context, does not extend to employer-mandated tip pooling, whereby employees must pool and share their tips with other employees.”
The Lu court itself didn’t decide that question. “We express no view on whether tip pooling is permissible under section 351,” it said in a footnote, according to the opinion. So the authority for tip pools rests on Court of Appeal decisions, and employers outside the restaurant setting should look at the decisions closest to their own industry.
The casino in Lu required card dealers to put 15 to 20 percent of their tips into a pool shared with other employees who served customers, and its policy barred management from receiving pool money. Keeping managers out of the pool is a feature employers should check closely.
Can managers or supervisors share in the pool?
Not if they’re the employer’s agents. Section 351 bars any “employer or agent” from receiving tips. And section 350(d) defines “Agent” as “every person other than the employer having the authority to hire or discharge any employee or supervise, direct, or control the acts of employees.”
That definition reaches further than job titles. A shift lead who directs other servers’ work may be an agent even if the company doesn’t call them a manager. An employer that puts a supervisor in the pool should be able to show, from the supervisor’s actual duties, that they don’t have the authority the statute describes. The safer course for most businesses is to keep anyone with supervisory authority out of the pool.
| Issue | Rule | Source |
|---|---|---|
| Employer or agent keeping tips | Prohibited | Lab. Code § 351(a) |
| Tips counted toward wages | Prohibited | Lab. Code § 351(a) |
| Pooling among non-agent employees | Generally allowed under Court of Appeal decisions | Lu (describing the case law) |
| Credit card processing fees | Can’t be deducted from tips | Lab. Code § 351(a) |
| Timing of card tips | No later than the next regular payday | Lab. Code § 351(a) |
| Records of gratuities the employer receives | Required and open to inspection | Lab. Code § 353 |
Can we deduct credit card fees from tips?
No. Section 351(a) says an employer that lets customers tip by card “shall pay the employees the full amount of the gratuity that the patron indicated on the credit card slip, without any deductions for any credit card payment processing fees or costs that may be charged to the employer by the credit card company.”
Timing matters too. Card tips “shall be made to the employees not later than the next regular payday following the date the patron authorized the credit card payment,” under section 351(a). A point-of-sale setup that holds card tips past the next regular payday invites a section 351 claim. It’s worth checking how the payroll system actually handles card tips, not just what the policy says.
Who enforces the tip rules?
The Labor Commissioner, and now expressly by citation. Section 351(b), added effective January 1, 2026, says “The Labor Commissioner may investigate and issue a citation or file a civil action for gratuities taken or withheld in violation of this section.” Citations follow the procedures in section 1197.1. The firm’s post on Berman hearings covers how Labor Commissioner wage proceedings work.
Employees can’t sue under section 351 directly. In Lu, the Supreme Court held “that section 351 does not contain a private right to sue,” according to the opinion. But it added that this holding “does not necessarily foreclose the availability of other remedies,” and pointed to “a common law action for conversion” as one. In Lu itself, the Court of Appeal allowed an unfair competition claim based on section 351 to go forward, and the Supreme Court affirmed the Court of Appeal’s judgment after limiting its review to the private-right question.
What records do we have to keep?
Records of every tip the employer receives. Labor Code section 353 says “Every employer shall keep accurate records of all gratuities received by him, whether received directly from the employee or indirectly by means of deductions from the wages of the employee or otherwise.” The records have to be open to inspection by the department.
Good records also make the defense. A tip claim usually comes down to what came in on each shift, who was in the pool, and what each person received. An employer that can produce that data shift by shift is in a far better position than one relying on a written policy alone.
After a tip claim, citation, or PAGA notice
- Preserve the point-of-sale tip data, payroll records showing tip payouts, the written tip pool policy and any earlier versions, and the emails and texts among the managers involved.
- Calendar the response deadline on the citation, notice, or lawsuit, and check for an arbitration agreement and an employment practices liability (EPLI) policy with notice terms.
- Identify everyone who participated in the pool and what authority each had over other employees, and stop any action against the complaining employee that could look like retaliation.
- Pull the records showing how card tips were paid, including any fee deductions and the dates tips reached employees’ paychecks.
- Get legal advice before changing the pool, repaying tips, or responding to the Labor Commissioner, since each of those steps can affect the claim.
Tip claims tend to grow once one employee’s complaint becomes a group’s. The firm’s California wage and hour defense work includes tip pool disputes, and its post on wage complaint retaliation covers the risk of acting against an employee who complains.
Tip pooling questions employers ask
Can kitchen staff be included in a restaurant tip pool?
Whether back-of-house employees can share in a pool depends on the Court of Appeal decisions that allow pools, and they can’t be agents of the employer. Under Lu, the authority for these pools comes from Court of Appeal decisions, so the employer should match its pool to the facts of those cases and write down why each position is included.
Can an owner who works the floor keep tips?
No. Section 351 bars the employer from taking tips left for employees, and that includes an owner. An owner who personally serves a customer and receives a tip directly is a different situation, but owners shouldn’t share in a pool funded by employees’ tips.
Is a mandatory service charge a tip?
Not necessarily. Section 350(e) defines a gratuity as money paid “over and above the actual amount due the business,” and a mandatory charge may be part of the amount due. How the charge is described to customers matters, so the menu and receipt language should be reviewed with that line in mind.
Can we pay tips in cash at the end of each shift?
Yes, for cash tips, but the employer still has to keep records under section 353. For card tips, section 351(a) sets the outer deadline at the next regular payday. Many employers pay card tips through payroll, which helps with recordkeeping.
If your company is facing a tip claim
If your company has received a Labor Commissioner citation, a PAGA notice, or a lawsuit over tips or a tip pool, the pool’s membership and the shift-level payout records usually decide how much of the claim is real. Rosenberger + Kawabata represents employers defending employment lawsuits and claims through its business litigation practice, including claims involving tip pooling and gratuities. Contact Rosenberger + Kawabata online for a confidential consultation, or call (310) 894-6921.
Sources
The statutes are Labor Code section 350, section 351, and section 353. The case is Lu v. Hawaiian Gardens Casino, Inc. (2010) 50 Cal.4th 592.
This post is general information about California and federal employment law as of November 7, 2026. It is not legal advice, and reading it does not create an attorney-client relationship. Employment statutes, regulations, and court decisions change often, and the outcome of any claim depends on its facts. Past results do not guarantee future outcomes.