On June 17, 2014, the HAWSCT accepted cert in Jason Kawakami v. Kahala Investors, LLC, SCWC-11-0000594, involving whether Kahala violated Hawaii law by failing to allocate certain service charges on food and beverage services to its food service employees.
Under Hawaii statutory law (HRS Section 481B-14), service charges on the sale of food and beverages must either be distributed to the employees as tip income, or not distributed but used to pay for non-wage costs and expenses but only if this is clearly disclosed to the purchaser.
Kawakami held his wedding reception at Kahala. When the service charge on his invoice was not distributed to Kahala’s employees as a tip, he claimed this was never disclosed to him. He sued as a class representative on behalf of all consumers who have paid such charges that were never distributed as tip income. Kahala argued that it was entitled to a 15% share of such charges under collective bargaining agreements, and that its standard business practice was to allocated its share to bookkeeping offsets. After deciding pre-trial that Kahala did not violate the statute in the manner in which it used its management share of the service charges, the circuit court granted Kahala’s judgment as a matter of law on the basis that Kawakami had not show any economic loss because of Kahala’s practice.
The ICA held that that the use of the words “tip income” and “wages” in the statute is synonymous. According to the ICA, because Kahala distributed its management share of the service charges to its wage obligations, there was nothing Kahala was required to disclose. The ICA noted, however, that Kahala’s practice “illuminates a possible loophole or defect” in the statute since its customers are unaware that the gratuities they pay are not actually paid wholly to Kahala’s employees as income.
On cert, Kawakami argues that the ICA erred because Kahala’s failure to disclose violates the statute since by reclassifying the service charge money to its preexisting wage and salary obligations rather than distributing it 100% directly as tip income, and by failing to disclose the practice.
The order accepting cert is available here.
The ICA’s memorandum opinion is available here.
The cert application is available here.
The opposition to cert is available here.
The reply in support of cert is available here.