Hotels were not entitled to deduct amounts from employees’ tips

At Oslo Plaza Hotel AS and Hotel Bristol AS in Oslo, several groups of employees receive tips from guests. Until 1 January 2019, the tips were distributed in full among the employees. From 1 January 2019, amendments to the regulatory framework came into force, imposing new obligations on employers in relation to the handling of tips. The hotels therefore began making deductions from the tips to cover, among other things, employer’s National Insurance contributions and the costs of administering the tipping scheme. The Supreme Court held that the hotels were not entitled to do so.

The Supreme Court started from the premise that tips paid by guests are not payments made to the employer, but rather gratuities and payments intended for the employees. Accordingly, the employees are entitled to receive the tips. In the Court’s view, neither the legislative history nor any other legal sources provided a basis for concluding that an employer may deduct amounts from employees’ tips to cover its own expenses.

The legislative amendments introduced in 2019 were motivated by tax and social security considerations. They were not intended to alter the private-law nature of tips or the scope of the employer’s managerial prerogative in relation to the handling of tips received. The deduction scheme implemented at Oslo Plaza and Hotel Bristol therefore fell outside the scope of the employer’s managerial authority. The Supreme Court further held that two employees who had entered into employment contracts after the deduction scheme was introduced could not be regarded as bound by that arrangement.

The judgment clarifies that employers have no legal basis for deducting amounts from employees’ tips in order to cover employer’s National Insurance contributions or the costs of administering a tipping scheme.

Source: Supreme Court