SJC Finds Non-Employer May Be Held Liable for Retaining Service Charges under Massachusetts Tip Statute

In DiFiore v. American Airlines, Inc., the SJC held that American Airlines violated Massachusetts General Laws ch. 149, § 152A (Tip Statute) when it failed to remit a fee charged for curbside check-in to skycaps who were employed by a contractor of the airline. The Tip Statute requires an “employer or other person” to remit a “service charge” to employees in occupations that customarily receive tips or gratuities and defines a “service charge” as a fee charged by an “employer” in lieu of or in addition to a tip or fee that a customer would reasonably expect to be given to the employee.

In DiFiore, ten skycaps, eight of whom were employed by independent contractor G2 Secure Staff, filed a lawsuit against American, alleging that the airline violated the Tip Statute when it implemented a $2 per bag fee for curbside check-in and failed to distribute the proceeds of the charge to the skycaps. Instead, after collecting the fee, the skycaps employed by G2 were required to remit it to G2 (who split the fee with American), and the skycaps employed by American remitted the fee directly to American. After a jury verdict in favor of most of the skycaps, American requested a new trial, arguing that the statutory definition of a “service charge” only includes charges levied by an “employer,” and therefore it could not be liable for the claims of the G2 skycaps. The G2 skycaps, on the other hand, argued that because liability can attach to employers or “other persons” under the Tip Statute, American could be liable even though it was not their direct employer. Because this was a novel issue, the court asked the SJC to clarify whether an entity other than an employee’s direct employer may be held liable for failing to distribute a service charge.

The SJC held that American was liable to the G2 employees notwithstanding that it was not their employer. The Court reasoned that the Legislature enacted the Tip Statute to ensure that service employees receive all proceeds from service charges that customers intended for them to receive. This purpose would be undercut if a business in the service industry, such as an airline or restaurant, could escape liability by entering into a contract with a third party, such as G2, under which the third party employs workers and shares a service charge collected from customers with the service entity.

This decision could have far-reaching implications for businesses in the service industry that contract with third parties for the provision of labor, particularly in light of the fact that Tip Statute claims are now subject to mandatory treble damages. Under DiFiore, a business may not avoid liability under the Tip Statute by outsourcing services to a third party and contractually requiring the outsource employer to remit to that business all or part of a service charge. Rather, the Tip Statute requires that service employees receive all the proceeds from service charges.