Ontario bans employer clawbacks on tips

New law lauded by employers, employees alike

Service industry workers in Ontario will no longer see their employers taking a cut of their tips after a new law was passed late last year. 

Bill 12, the Protecting Employees’ Tips Act, effectively prohibits employers from withholding employees’ tips or other gratuities for workers in the service industry, such as restaurant, spa and hotel employees. 

The legislation was first introduced more than five years ago by NDPer Michael Prue as Bill 49, and reintroduced in 2014 as a private members’ bill by Toronto MPP Arthur Potts. It is slated to come into effect in mid-2016.  

The legislation will amend the province’s Employment Standards Act to prohibit owners from taking or withholding tips and gratuities from employees, with exceptions for sole proprietors and partners of restaurants where they are involved in delivery and service equivalent to employees. 

Ontario follows New Brunswick and Quebec, as well as New York, where similar laws are already in place. And the move was lauded by both sides of the equation. 

“I believe we came to an agreement on what was fair for both employers and employees,” said Tony Elenis, president and CEO of the Ontario Restaurant, Hotel and Motel Association (ORHMA). 

Of particular concern was the bill not taking into account the nuances of many service settings. That includes tip sharing or pooling practices, such as giving a cut to back-of-house workers. 

Nor did it clarify whether an employer could take a cut to cover the processing fees charged by credit card companies. The province’s labour ministry will be responsible for regulating exemptions for credit card fees, which is an additional charge for processing. 

“From that end, we feel it is a fair bill because it sort of supports those that are in the service delivery and that’s what it’s meant for,” said Elenis. “If there is no (tip-sharing) system in place, it does create conflicts between personnel who work hard and are part of that service experience, that guest experience.” 

Oftentimes, a hostess, busboy or barback might not receive a commensurate share of the tip or gratuity, and that can lead to conflict in the workplace and have an impact on an employee’s morale. 

“This industry is extremely regulated and we just don’t want any more red tape. You know, this is just another policy, because there are so many, especially with the small margins that this industry is performing on,” he said.

And while there remains one complication with the law — in unionized environments, employer cuts are sometimes written into collective agreements through a tip pooling or sharing provision — the government said the bill was drafted in a manner that will eventually phase out the practice when those contracts expire, effectively eliminating the practice on all fronts. 

That the legislation has been in the works for so many years is indicative of a precarious labour force and loosely regulated industry, compared to the traditional workforce, said Jonquille Pak, an employment lawyer at Toronto-based firm Whitten & Lublin.

“It’s a really positive development as it relates to the hospitality and service industry where you typically have a lot of staff who are highly dependent on tips as part of their overall remuneration.” 

One reason for the delay could have been the lack of employee pushback against the practice, she said. 

“You have generally a workforce that is very young, maybe less educated if they’re not students, and there is a high turnover. You have a lot of transient workers in that industry, so they’re less likely to push back on employers taking advantage.” 

Because tips were not considered part of wages under the Employment Standards Act, it left room for interpretation and, in some cases, manipulation. Employers are allowed to make certain types of deductions to wages, such as for Canada Pension Plan or income tax or health benefit programs, but because tips weren’t included, it became problematic, said Pak. 

“That never applies to tips. It wasn’t defined as a part of wages, and it’s still not. But this legislation addresses that gap.”

It’s a move in the right direction to hold the industry to a standard, to make it accountable, she said. 

“It’s not just bars and restaurants, it’s any type of service provided. It casts a broad net in terms of its application and employers need to be careful of this — there are fines under the Employment Standards Act; compliance issues, Ministry of Labour complaints. It’s narrow, but the application is vast.”

It is, therefore, the responsibility of HR professionals to review current policies and practices, and determine whether they may have to make changes or develop a set of clear guidelines, said Pak. 

Oftentimes, it is the role of human resources to inform management, as the latter are not always aware of these reforms and how they apply to their business. It’s HR’s responsibility to inform management on how to revise and properly implement current practice for collecting tips, she said. 

Latest stories