Ontario restaurants, bars and other businesses with employees who receive some of their pay through tips and gratuities will face new laws governing how these tips are collected and distributed to employees beginning this summer. The regulations have yet to be developed, but the new laws will take effect on June 10, 2016.

Under Bill 12, An Act to Amend the Employment Standards Act, 2000 With Respect to Tips and Other Gratuities (passed in December 2015) an employer will be prohibited from withholding, deducting, or collecting tips or other gratuities from an employee unless authorized to do so under the Employment Standards Act, 2000 (ESA). Bill 12 defines “tip or other gratuity” as:

1. a payment voluntarily made to or left for an employee by a customer such that a reasonable person would likely infer that the customer intended that the payment would be kept by the employee or employees;

2. a payment voluntarily made to an employer by a customer such that a reasonable person would likely infer that the customer intended that the payment would be redistributed to an employee or employees;

3. a service charge or similar charge imposed by an employer such that a reasonable person would likely infer that the customer intended that the payment would be redistributed to an employee or employees; and

4. such other payments as may be prescribed.

In other words, if a customer makes a voluntary payment that a reasonable person would likely infer was intended for employees, then the payment will constitute a “tip or other gratuity” under Ontario law, regardless of whether payment is made by the customer to the employee, to the employer, or as part of a service charge levied by the employer.

The method of payment also does not impact whether a payment constitutes a “tip or other gratuity.” A voluntary payment made by credit card will constitute a “tip or other gratuity” if a reasonable person would likely infer that the payment was intended for employees. The exemption for charges relating to the method of payment will likely apply only to credit card service charges, and only if such charges are prescribed by regulation.

One exception or authorization is “pooling”, under which an employer may withhold, deduct, or collect tips or other gratuities if it redistributes such tips or other gratuities to some or all of its employees. Even this exception, however, has limitations on the employees that can share pooled tips and other gratuities. For instance, an employer, or a director or shareholder of an employer, is prohibited from sharing in tips or other gratuities unless such person regularly performs, to a substantial degree, the same work performed by the employees who share in the redistribution, or employees of a different employer in the same industry who commonly receive or share in tips or other gratuities. In addition, for an employer to share in the pooled tips and gratuities, the employer must also be a sole proprietor or a partner in a partnership.

Other exceptions include authorization through Ontario or federal legislation or by a court order.

Enforcement

If an employer violates any of the prohibitions, the amount withheld, deducted or collected becomes a debt owning to the employee and is enforceable under the ESA as if it were wages owing to the employee.

Collective Agreements

If an employer is party to a collective agreement that is in effect as of June 10, 2016 and includes provisions addressing the treatment of employee tips or other gratuities that conflicts with Bill 12, the provisions of the collective agreement prevail until a new or renewed collective agreement comes into effect. If the collective agreement is made or renewed on or after June 10, 2016, Bill 12 will prevail over the provisions of the collective agreement.

Going Forward

As we continue to monitor this development, employers should review their existing tips and gratuities policies, including any applicable collective agreement provisions.