Tips Not Subject to Garnishment

What seemed like a small garnishment matter in Roanoke City General District Court could have had drastic implications to Virginia’s restaurant industry, but Gentry Locke was able to successfully defend a national restaurant chain from having to garnish its employee’s tips. The facts started out in a typical fashion: the Restaurant received a garnishment summons for one of its tipped employees and responded to the summons, indicating that the employee did not earn enough wages to be garnished. As is the required minimum, and standard in Virginia, the tipped employee made $2.13/hour, well below the statutory limits on garnishment.

The Creditor challenged the Restaurant’s response with the argument that the employee earned enough wages if the Restaurant included her tips in her wages. Whether employers are required to garnish tip income was the sole issue in the ensuing litigation. The Department of Labor’s Field Operations Handbook instructs that “gratuities transferred free and clear to an employ at the direction of credit customers who add tips to the bill” and cash tips are not earnings subject to garnishment. In other words, the federal rules do not allow garnishment of cash tips or tips left on credit cards.

Virginia Code § 34-29, however, includes additional language when defining earnings, including money “whether paid directly to the individual or deposited with another entity or person on behalf of and traceable to the individual.” Further, the Virginia Department of Labor Field Operations Manual says that tips are not usually subject to garnishment “because tips do not pass through the hands of the employer.” (emphasis added). There is little to no Virginia case law on the matter.

The question at trial became whether tips left on credit cards (or cash tips for that matter) passed through the hands of the Restaurant and could arguably be subject to garnishment. At the trial on the matter, one of the Restaurant’s manager’s testified as to the Restaurant’s tip process, which, much like the majority of restaurants in Virginia, cashes out each tipped employee at the end of a shift. In other words, the employee leaves each shift with cash representing the tips he or she has earned (whether left in cash or on a card) during that shift and is required to report his or her tips for tax purposes. The tips are not paid through a pay check, they are not collected by the Restaurant and distributed to the employee at a later time, and the Restaurant has no control over the employee’s tips. The manager also testified that requiring the Restaurant to collect and garnish tips would be onerous if not impossible to do. Based on the manager’s testimony, the case was dismissed, and the rule remains that employers are not required to garnish cash or credit card tips that do not pass through the employer’s hands.

For this or any similar issues, please contact our Business Litigation or Employment Law attorneys, who would be happy to help.

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These articles are provided for general informational purposes only and are marketing publications of Gentry Locke. They do not constitute legal advice or a legal opinion on any specific facts or circumstances. You are urged to consult your own lawyer concerning your situation and specific legal questions you may have.