Tip or Other Gratuity: Proposed Credit Card Processing Fee Exemption Under ESA

In general in Canada, restaurant and bar patrons are expected to leave a tip amounting to approximately 15 percent of their total bill when dining out or drinking. However, we usually do so without asking ourselves how the money will be divided among staff members. Well, it seems in Ontario, it is a common practice for restaurants to require servers to share their tips and gratuities with their managers and the owners.

Protecting Employees’ Tips Act, 2015 (Bill 12), amended the Employment Standards Act, 2000 (the “ESA”) to provide that employers are prohibited from taking any portion of an employee’s tips or other gratuities, except in limited circumstances. This prohibition affects all sectors and workplaces where an employer-employee relationship exists (including restaurants, nail and hair salons, banquet halls, hotels, spas), subject to other ESA exclusions. Effective June 10, 2016, the amendments will come into force.

“Tip or other gratuity” means:

A payment voluntarily made to or left for an employee by a customer of the employee’s employer in such circumstances that a reasonable person would be likely to infer that the customer intended or assumed that the payment would be kept by the employee or shared by the employee with other employees.

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

A payment of a service charge or similar charge imposed by an employer on a customer in such circumstances that a reasonable person would be likely to infer that the customer intended or assumed that the payment would be redistributed to an employee or employees.

Such other payments as may be prescribed.

The ban effective June 10 includes:

• Not withholding tips or other gratuities from an employee.
• Not making a deduction from an employee’s tips or other gratuities.
• Causing the employee to return or give his or her tips or other gratuities to the employer unless authorized to do so under the law.

However, in accordance with subsection 14.1(2) of the ESA, a “tip or other gratuity” does not include such charges as may be prescribed relating to the method of payment used, or a prescribed portion of those charges. When a business receives payment from a customer by credit card, they pay a fee to the credit card merchant. Such fee is usually a percentage of the payment and is referred to as the credit card processing fee.

The Ministry of Labour (the “MOL”) is now proposing to develop a new regulation under subsection 14.1(2) of the ESA to exclude credit card processing fees from protected tips and gratuities. If adopted, where tips and gratuities are charged by a customer on a credit card, an employer could deduct or withhold the credit card processing fee from the tip provided to the employee.

For instance, a credit card company may charge a processing fee of three percent.

If a customer left a $10 tip for the employee, the employer would pay the three percent fee (i.e. the $0.30) to the credit card company and the employee would be entitled to the remaining $9.70.

Share your views! The MOL is seeking public input until April 7, 2016.

Co-author: Cristina Lavecchia