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Legally Sound | Smart Business


The Podcast Where Nasir Pasha and Matt Staub cover business in the news with their legal twist and answer business legal questions that you the listener can send it to

Nasir and Matt talk about the difference between a delivery fee and a tip and why a New York Pizza Hut may owe its drivers some money. They also discuss how the minimum wage increase has affected tipping.

Full Podcast Transcript

NASIR: All right. Welcome to our podcast where we cover business in the news and add our legal twist to that business news. My name is Nasir Pasha.

MATT: And I’m Matt Staub.

NASIR: Welcome to our annual pizza episode which we celebrate every month.

MATT: Annual. What’s the word for…?

NASIR: Monthly?

MATT: Yeah, I mean, like, bimonthly two, trimonthly…

NASIR: Biannually?

MATT: I don’t know. What’s twelve?

NASIR: Twelvely? N, that’s not right at all.

MATT: Sure there’s a word for it. We’ll figure it out before the end of the episode. I’ll look it up when you’re saying something or vice versa.
Yeah, you’ve been wanting to talk about… we’ve been scouring the interwebs for a pizza-related legal story for a month now because you really want to talk about it and then we had some that’s at least a little bit and it deals with Pizza Hut which I know we talked about before too but this is a pretty interesting thing that happened. This was in New York. What happened here was a couple of delivery drivers – and then it looks like it might turn into class action lawsuit, or at least that what they’re discussing right now, the possibility of it but – two delivery drivers for Pizza Hut are suing the company, claiming that delivery fees – and I’m using the word “delivery fees,” we’ll get into this but – the tips versus delivery fee is an issue and we’ll get into that but they’re saying that these delivery fees should be money that goes to the delivery drivers and instead company or the employer – aka Pizza Hut – is keeping them. What is exactly is happening? You call in to Pizza Hut, you order your whatever, and they say, “All right, delivery… “

NASIR: Wait, wait, wait… what do you order?

MATT: I don’t know I haven’t been to Pizza Hut in a while. I like pepperoni jalapeno is pretty good. I think that was the Philip Rivers thing. Did you see that? Not to get too far. You know Philip Rivers?

NASIR: No. Yeah. I know Philip Rivers, yeah, quarter back of the San Diego Chargers.

MATT: Yes, he got a big contract a couple of weeks ago, making him one of the highest-paid players guaranteed money wise – like, just an insane amount of money. He was at the press conference and they were like, “Well, what did you do with the money? What did you do after you found out?” He was like, “Well, I guess I’m Domino’s, Domino’s Pizza.” It was like, “Okay. Like, what you get?” He’s like, “Oh, pepperoni and jalapeno and black olive is my choice.”

NASIR: Wait, was it a commercial or was it a press conference?

MATT: This was his actual press conference. They asked him what he did to celebrate he said he ordered Domino’s.

NASIR: That’s funny!

MATT: I guess he also has like eight kids or something crazy like that so maybe it makes sense.

NASIR: Yeah.

MATT: But anyways, that’s what I’d get. Pepperoni jalapeno is pretty good but, man, you got me off- track now. Okay. You call Pizza Hut, you get this and they say, “Pick up or delivery?” You say delivery and they say, “All right. Well, there is a delivery fee of $3.00 or whatever it is.” I don’t know the actual amount.

NASIR: I think it was $2.00 and now it’s $3.00, I think.

MATT: Okay. So, you say yes and then pizza’s made, delivery guy or girl goes out to deliver the pizza and some people might look at that and be like, “Oh! I already paid the delivery fee. I don’t need to tip. This is the tip.” While others say the delivery fee is something or the tip is something that’s on top of the delivery fee. You probably wouldn’t know this unless you delivered pizzas like I did but it’s something a lot of people probably just don’t even know about.
What happened here – in New York at least – they distinguish between “delivery fee” and a tip or gratuity and so the delivery fee can be held by the employer as opposed to a tip or gratuity that needs to go to the person that is actual earning it. I mean, there might be some, I don’t know about New York with tip pooling how that works and all that but…

NASIR: And there’s also tip credits and all that.

MATT: Yeah, that as well. That’s the distinguishing factor here. Pizza Hut is saying, “This is our money. It’s the delivery fee. Sorry that you drove this pizza out and got no money and also spent gas money to get it there,” and that’s kind of where this all starts from.

NASIR: Yeah, and there’s a lot there because the argument by these attorneys that are representing these two former employees and are making this into a class action is that, even if they call it a delivery fee, we as consumers believe that it may be a tip and I think there’s some argument there to it because we were just doing some research and there was one of those Yahoo! Answers which I don’t know who uses that still but someone asked, you know, “Pizza Hurt charges $2.00 for delivery. Does that mean that I don’t have to tip the driver?” Even if someone asks that question, right? It’s unknown. Does this $2.00 go to the driver or not? And, you know, of course, Pizza Hut is going to say, “Well, this is a delivery charge and it’s specified if it’s meant tip, we would have said tip. If it was a driver charge and then maybe, but this is a delivery charge,” and also these drivers are compensated for the use of their vehicle and they’re getting paid their wage so, you know, they are being compensated. But the trick is here in New York and many others states, if it is a tip, then the employers can’t partake in that tip unless they have a specified tip credit and so forth.

MATT: Tip pooling, yeah.

NASIR: Yeah, tip Pooling. It has to be very well documented and so forth. And so, I can understand the argument but I don’t know about you. I mean, to me, delivery charge and tips are two separate things and, if someone does not tip, well, they are just being kind of stingy, I suppose.

MATT: Those are always the worst. Before I get too into that, one funny thing about one the attorneys that’s involved in this lawsuit on the plaintiff’s side is he delivered pizzas for seven years so it’s near and dear to his heart.
But, yeah, New York labor law requires that employers must notify delivery customers that the delivery fee is in fact not a tip. Now, I don’t think, you know, when they say delivery fee, they don’t have to say, you know, “Hey, consumer! This is not a tip,” but they just need to clearly identify that it is a delivery fee and it’s not a tip or gratuity, and what they say is – of course, this always leaves room for interpretation – a reasonable customer must be able to understand that the charge a delivery fee is kept by the employer as a delivery charge as opposed to a tip that’s for the employees. The spot I worked at didn’t charge a delivery fee but there’s a business that has a similar model I’ve talked to a couple of them, they do this sort of setup so maybe that’s why I was aware of it. But I think you’re right and the argument for the attorneys, it’s a nice argument too that the normal consumer or the normal deliveree…

NASIR: That can’t be correct. Something’s wrong with that.

MATT: Doesn’t know that this is the case. Yeah, I mean, I think they have some legs to stand on here.

NASIR: But I can’t help but to also talk about the whole tipping culture in the first place. I mean, first of all, whether someone understands a delivery fee goes to the driver not is culturally specific. It depends if someone knows it. I feel like I know it but that’s because maybe my profession or whatever and I’ve been exposed to that but there’s plenty people that may not. But then, tipping in general, also, okay, I try to be a good tipper but I do have some animosity about the culture of automatically tipping, too. Right? And I’m sure this is nothing new. I’m sure people have this argument but here’s the problem. You kind of have to tip because the standard federal law is that there is a minimum tipped wage, right? And it’s $2.13, I think it’s what the federal minimum is. And so, what that means is that, when you have employees that get a lot of tips you can set their minimum wage to $2.13 and then, whatever tips they get, they get to keep, obviously. And so long as that their effective minimum wage is above the federal minimum wage then all you have to do is pay them $2.13 an hour.
Now, that’s not the case in many states like California. The minimum wage is $9.00 for both tipped workers and non-tipped workers but that’s different for Illinois. Illinois is $4.95. New York also has different type of minimum wages depending upon the type of like food service employee minimum wage is $5.00, service employees and restaurant – I’m sorry – and resort hotels minimum wage is $4.90 an hour if they receive at least $4.10 and tips per hour. So, there’s these different rules here and there that can be very specific but, generally, that’s the only thing that, you know, the culture of automatically tipping always kind of bugs me. I don’t know about you.

MATT: Not really.

NASIR: No? Okay.

MATT: I mean, I can see what you’re saying. It just doesn’t really bother me and the tricky for me is, when I go to a foreign country, to know the rules because I made a mistake the first time I went to Italy for example, I just tipped like I normally did in the US and the second time around, my wife had looked into it, and it’s actually pretty standard – I forget what it was – to either not tip at all but – no, it was basically just round up to the nearest euro. I was like, “Oh!”

NASIR: “Whoops!”

MATT: “Whoops! I screwed that one up.”

NASIR: Because of this push for minimum wage workers, especially in the food industry to get paid more, you know, this $15.00 an hour seems to be the numbers that keeps being referenced here is that a lot of people – I shouldn’t say a lot but there are many restaurants that are now experimenting with – I don’t even know if “experiment” is the right word but they are basically increasing the wage and having a “no-tip” policy. From a legal perspective, whether someone gives a tip still or not, you know, it varies by state. But, if you have a “no-tip” policy from your customers’ perspective and hey these people are well paid – they are being paid $25.00 an hour – these restaurants that have experienced that, they no longer worried about slow nights and really depending upon tips. Of course, that can have a negative effect, too. I like the European models where I don’t know if all Europe is like this but I think the concept should be no tip on default. They’re paid adequate wages but, if their service is exceptional, then you know, tipping is permitted and allowed.

MATT: Yeah. But I believe – I can’t remember which country this was, it might be France or I’m sure it’s multiple ones – a lot of these servers are salaried so that’s why they say like just don’t even tip them because they make what they make and that’s that. So, I thought that was pretty interesting, I mean, in my experience, the people I’ve known that have been in the restaurant industry, the servers can be very flaky so I don’t know if salaried servers is always the way to go but…

NASIR: That’s true.

MATT: It was an interesting model and the thing that I’m reading here, it says that it’s highly controversial. I don’t really think that it’s highly controversial but this “no-tip” policy can pretty beneficial. I mean, your servers are going to be feeling pretty good about security in terms of pay and I’m sure it reduces a ton of back-end work on the accounting side and reporting side and all things like that. I guess, on the flip side, you know, you’re paying the servers more, there is no incentive for them to do even good work. I mean, I guess keeping their job is the incentive but there’s no incentive for them to do above and beyond work that the normal standard would be.

NASIR: Absolutely, and now that I’m thinking about and seeing what you are saying, I think the main issue is that, if it’s a standard 15 percent, then it might as well be salary. Frankly, I tip high even when the service is bad which is weird because I feel this pressure to do so. Yeah, I’ll pay a little bit more if it’s good. Basically, I try to do 20 percent and I go to 15 percent if it’s bad.

MATT: About the same, yeah.

NASIR: Which doesn’t make sense when you think about it, right?

MATT: No, not at all.

NASIR: It’s like I’m going to give this 15 percent even though I hated the service, my order was wrong, and my food was cold, but hey, here’s some extra money.

MATT: And I’m pretty much the exact same way. The only time I dip lower is if the person was really bad, if the server was really bad or rude. I’m someone that does not tip less because it took longer. I mean, usually, that’s not the fault of the server. I mean, if I can tell if the server is really, really dropped the ball then, yeah, that’s one thing. But there’s too many times the server gets penalized for something that’s not their fault so…

NASIR: Yeah.

MATT: I don’t like to penalize them and it can’t be that fun to be a server either.

NASIR: Oh, yeah, definitely not. The food industry is a very tough job.

MATT: People treat them pretty poorly. I don’t really understand it. We’re all the same people. I don’t really get it.

NASIR: That’s my tip. When I say 15 to 20 percent, I give them 20 percent in the sense that I don’t treat them poorly, you know. Otherwise, I usually do if it’s a bad service so. Speaking of, you know, Donald Trump has been totally banned from a particular pizza shop which I think is a publicity stunt, you know. I guess it’s a New Jersey pizza shop has banned Donald Trump for his comments last month about Mexican immigrants and et cetera.

MATT: Yeah.

NASIR: But I thought that was interesting still. I have only been banned by five pizza places so I’m pretty good still.

MATT: What for?

NASIR: Oh, mostly my comments about Mexican immigrants when I was running for president last year.

MATT: And an off year, yeah.

NASIR: That’s why I lost.

MATT: Did you even make it worth your while?

NASIR: Barely, I missed it by a couple of years so I didn’t get any votes.

MATT: Makes a lot of sense.

NASIR: But, yeah, not to get political here but, that Donald, he’s an entertaining candidate, for sure.

MATT: Yeah, I guess we’ll see what happens with that. I mean, it’s at least keeping things interesting.

NASIR: Yeah.

MATT: If it’s him and like Jeb Bush. Jeb Bush I basically described as a cardboard, he’s like a robot, basically.

NASIR: Yeah.

MATT: It’s like pre-programmed things and just…

NASIR: If there was a character on The Simpsons for like a standard politician, that would be him.

MATT: Yeah, that’s fair to say. Well, I guess there is Mayor Quimby on The Simpsons. He wasn’t like that.

NASIR: No, but that was kind of a JFK or Kennedy, more or like what’s his name that passed away? That Kennedy, I forgot his name. He was a senator.

MATT: Robert Kennedy?

NASIR: No, I’m trying to remember now.

MATT: Jaime Kennedy?

NASIR: No, Ted Kennedy.


NASIR: I think that was a play on him, but I’m not positive.

MATT: I mean, the accent’s there. I think you’re right.

NASIR: All right. Well, thanks for joining us on our political talk – political talk news with Nasir Pasha and Matt Staub.

MATT: Keep it sound and keep it smart.

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Legally Sound | Smart Business covers the top business stories with a legal twist. Hosted by attorneys Nasir N. Pasha and Matt Staub of Pasha Law, Legally Sound | Smart Business is a podcast geared towards small business owners.

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