Volume 76, Number 37 | February 7 -13, 2007

Chinatown restaurant is served with $700,000 fine for biting tab

By Mary Reinholz

After three-and-a-half years of hair-splitting litigation over what constitutes restaurant tips and hourly wages in a Chinatown case, a federal judge has ruled that proprietors at 88 Palace Restaurant on E. Broadway wrongfully retained 25 percent of the 15 percent added to banquet tabs. Judge Gerard Lynch of the Southern District Court of New York has ruled that the restaurant must pay $700,000, covering lost gratuities and back pay for 11 immigrant busboys and waiters dating to 2002, as well as court costs, according to court papers released on Sat., Feb. 3, by a coalition of workers’ rights groups.

Attorneys for the owners of the cavernous dim sum eatery — a second-floor establishment located in a Chinese mall beneath the Manhattan Bridge — had contended unsuccessfully at a trial ending Dec. 6 that the banquet tips were a service charge that belonged to the restaurant, not the wait staff, and that most of it had been used to pay part-time employees hired for such events as wedding celebrations “for a son or a daughter” when the restaurant was rented out, said Daniel Hochheiser, the Madison Ave. lawyer who argued for five defendants and a corporate entity called Sung Yue Tung Corp.

But a Feb. 1 opinion handed down by Judge Lynch said that customers generally assumed the service charge on bills was a tip to servers and also took note that the owners had treated the charges as tips in their wage and tax-accounting practices. Lawyers and volunteers for the plaintiffs hailed Lynch’s opinion as precedent setting.

“We believe this decision will impact the way employees are paid not only in New York but potentially the nation and will bring compliance to an area of the law that has previously been a bit unclear,” said Rachel B. Passaretti, an attorney at Skadden, Arps, Slate, Meagher & Flom who worked on the case pro bono and spoke at a press conference held at the Chinese Staff and Workers Association on Chrystie St. “That lack of clarity allowed employers to exploit it. Judge Lynch’s decision was well reasoned and comprehensive and established that simply calling something a service charge will not be enough. Employers are going to have to pay their employees appropriately and inform customers of their practices and treat this money correctly for accounting purposes.”

Ray Brescia, a lawyer with the Urban Justice Center who worked on the case with Passaretti’s law firm and a group of volunteers, said the judge’s ruling sends a message “not just to the Palace owners but to restaurants all over Chinatown and throughout the city that tip stealing is illegal and that waiters, busboys and busgirls should get their fair share of tips because that is what the customers intend.”

Hochheiser said Monday that he and his client needed some time to decide whether to appeal Lynch’s 57-page decision. But he believes that the trial “turned on the issue of a 15 percent additional amount which is added to the bill at banquet parties which the restaurant rents out. We said it belonged to the restaurant. The restaurant retained 25 percent and paid 75 percent [of that amount] to servers” at a banquet. Hochheiser claimed that some of the restaurant servers at 88 Palace made $9 to $20 an hour when tips were factored in and some waiters “can make $600 a night in tips at Thanksgiving banquets.” He added: “This was a very technical case and I think it was decided on a narrow issue.”

Passaretti noted the judge’s financial award to the 11 restaurant workers represents compensatory as well as claims akin to punitive damages. She noted the workers received a base salary below the minimum wage and used their tips as a credit toward hourly pay.


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