California Law Strengthens Enforcement of Tip Theft

Quick Hits

• California legislators recently passed Senate Bill 648, amending Labor Code section 351, which empowers the state labor commissioner to investigate and issue citations and fines for tip theft.
• The law adds civil penalties and private enforcement rights to California’s existing labor protections concerning gratuities.
• The law will take effect on January 1, 2026.

The California Labor Code bars employers from withholding tips intended for workers and using tips as a credit against wages.

The new law allows the state labor commissioner to enforce these rules with citations and civil fines. The law impacts employers that have workers who receive tips, such as restaurants, bars, hotels, hair salons, barber shops, and nail salons.

If a business permits patrons to pay gratuities by credit card, the business must pay employees the full amount of the gratuity that the patron indicated on the credit card slip without reductions for processing fees or other costs charged to the business by the credit card company. These gratuities must be paid to employees at the next pay period after the credit card payment occurred.

The new law requires employers to keep accurate records of all gratuities received by the employer and make those records available to the California Department of Industrial Relations for inspection. Prior to the passage of Senate Bill 648, tip theft was not subject to citation by the state labor commissioner, so employees had to get involved in civil court actions to recover any stolen tips.

Next Steps

Employers in California may wish to review their policies and practices regarding gratuities to ensure that the full amount of the gratuities is paid to workers in a timely manner. Labor Code section 351 has been interpreted to allow for tip pooling so long as the tip pooling policy is not used to compensate the business owner(s), manager(s), or supervisor(s). SB 648 does not appear to affect this interpretation.

Unlike other states, California does not have a tipped minimum wage, so tipped workers should be paid at least minimum wage for all time worked, in addition to any and all gratuities paid by patrons.

Ogletree Deakins will continue to monitor developments and will provide updates on the California, Hospitality, and Wage and Hour blogs as new information becomes available.

Tracie L. Childs is a shareholder in Ogletree Deakins’ San Diego office.

Charles E. McDonald III is a shareholder in Ogletree Deakins’ Greenville office.

This article was co-authored by Leah J. Shepherd, who is a writer in Ogletree Deakins’ Washington, D.C., office.

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