STATE OF SOUTH DAKOTA
OFFICE OF
THE ATTORNEY GENERAL

July 25, 1969

Thomas R. Vickerman
Commissioner of Labor
Pierre, South Dakota 57501

OFFICIAL OPINION NO. 69-68

Determination of tips as wages under the minimum wage law

Dear Mr. Vickerman:

I have your request for an official opinion on the following question:

"Do tips received by employees constitute "wages" within the contemplation of South Dakota's Minimum Wage Law (SDCL 1967, 60-11-3)?"

The answer to your question depends upon the contract of employment. It is well established that in businesses where tipping is customary, tips, in the absence of an explicit contrary understanding, belong to the recipient. However, it is lawful for an employer and his employees to contract that the employees shall turn over their tips to the employer. In Re Farb, 178 Calif. 592, 174 P. 320, 3 ALR 301, Williams v. Jacksonville Terminal Company, 315 U.S. 386, 86 L. Ed. 914, 62 S. Ct. 659, rehearing denied, 315 U.S. 830, 86 L. Ed. 1224, 62 S. Ct. 99, 910.

The aforementioned Williams case is perhaps the leading case in this area. In that case a group of railway redcaps, through their representatives, sought to collect additional payments from their employers. The terminal who employed them paid them the difference between their tips and the Federal Minimum Wage in effect at that time. The employees sought to recover the amount of the tips, claiming that these were not part of their wages. The Supreme Court upheld the right of the employer to take into account tips when computing its obligation to meet the minimum wage, because the terminal issued a written notice to their employees stating that they would be required to report all their tips and this amount would be deducted from their wages. Had the terminal not changed the employment contract, the redcaps would have been entitled to the minimum wage in addition to their tips. Although the redcaps protested, they remained at work, and by doing so the new contract was created. The same reasoning has been followed in all state and federal cases appealed since the Williams decision. See 65 ALR 2d 974.

For the purpose of this opinion, it is not necessary to compare the Federal Fair Labor Act with the South Dakota Minimum Wage Law, although they are analagous. This opinion is based upon the masterservant relationship, which is found in the common law, unless modified by statute, which is not the case in South Dakota.

The answer to your question would then be, where an employer has no contract with his employees regarding the disposition of tips, said tips belong to the employees and may not be deducted from the minimum wage which the employer owes his employees. But when there is a contract between the employer and his employees that the employees' tips will be turned over to the employer, to be credited against his account, the employer may legally credit this as an advance on the employees salary, without violating South Dakota's Minimum Wage Law. It should also be noted that in the Williams decision the court held that it was not necessary for the redcaps to physically hand the tips to the employer in order to be credited with them. The majority opinion said:

"To interpret 'pay-wages' as limited to money passing from the terminal to the redcap would let construction of an important statute turn on a narrow technicality. It, of course, can make no practical difference whether the redcaps first turn in their tips and then receive their minimum wage or are charged with the tips received up to the minimum wage per hour."

Respectfully submitted,

Gordon Mydland
Attorney General