Metropolitan News-Enterprise


Thursday, September 9, 2010


Page 1


Court of Appeal Revives LAX-Area Hotel Service Charge Ordinance




A City of Los Angeles ordinance requiring hotels near Los Angeles International Airport to pass along service charges to employees is not preempted by state law, and is constitutional, the Court of Appeal for this district ruled yesterday.

Div. Three reversed a contrary ruling by Los Angeles Superior Court Judge William Highberger, and reinstated a suit by service workers seeking to enforce the 2006 enactment.

The city adopted the law in response to workers’ complaints that their employers were keeping all or most of the revenue from the service charges, and that customers were not tipping because they assumed that the charges were going to the workers.

The affected Century Corridor hotels—the ordinance applies to all hotels within the area officially known as the Gateway to Los Angeles Property Business Improvement District that have 50 or more rooms—argued that the city was interfering with day-to-day business decisions. They also claimed that the charges were usually passed along to workers, partially in the form of tips, and partially in higher wages. 

Trial Court Ruling

Highberger ruled that the Labor Code sections dealing with gratuities have “served as a bright-line” as to how moneys paid by customers are to be divided between employers and employees. The Service Charge Ordinance, he said, violate those sections by purporting to give employees “an ownership interest in mandatory charges added by the hotel.”

Having resolved the issue on a statutory basis, the judge did not rule on the hotels’ claims that the ordinance deprived them of equal protection, took their property without just compensation, and was unconstitutionally vague.

But Justice Richard Aldrich, writing for the Court of Appeal, said the ordinance was neither preempted nor unconstitutional.

Aldrich agreed with the hotels that the Legislature has completely occupied the field of gratuities, so that a city may not regulate them. But the hotel service charges regulated by the ordinance are not gratuities, so the trial judge was wrong, the justice said.

Labor Code

He cited Labor Code Secs. 350—defining a gratuity has money paid to an employee “over an above the actual amount due the business for services rendered”—and 351, which declares that a gratuity is the property of the employee to whom it is “paid, given, or left for.” A service charge imposed by a hotel on its patron “by definition is not a gratuity,” Aldrich declared.

He elaborated:

The Ordinance does not prevent hotels from charging patrons for services, but it recognizes that the 15 percent to 20 percent service charge misleads the public into assuming that the service charge is being distributed to the worker performing the services.  The Ordinance mandates that the service charge must be paid to the worker.  Thus, the Ordinance does not prohibit what the Labor Code commands or command what it prohibits.”

Addressing the constitutional challenges, Aldrich said the ordinance made rationally based classifications, was clear in its requirements, and did not effect a taking of property.

The city, he said, showed a rational basis for classifying hotels on the basis of size and location.

Rational Basis

By designating the corridor as a business improvement district, the justice explained, the city has “targeted [the area] for economic investment, and the City rationally could conclude this designation benefits Corridor hotels, obligating hotels to pay service workers a decent compensation.” It is similarly rational, he said, for the city to conclude that larger hotels do more business and can better afford to comply.

The hotels’ regulatory takings claim fails, Aldrich went on to say, under the test laid out in Penn Central Transp. Co. v. New York City (1978) 438 U.S. 104, because the government is not taking money for its own use and is not retroactively regulating economic activity or altering “an identified property interest.” A different result would obtain, he suggested, if the city were attempting to regulate charges for services traditionally provided by a hotel, such as laundry and dry cleaning, babysitting, or spa and health-related facilities.

The case is Garcia v. Four Points Sheraton LAX, B210720.


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