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Applebee’s Must Disclose Tipping Policy to Restaurant-Goers Upfront

— February 8, 2018

Applebee’s Must Disclose Tipping Policy to Restaurant-Goers Upfront

U.S. District Judge Paul Oetken of U.S. District Court for the Southern District of New York, nominated to his position by former President Barack Obama, ruled that Applebee’s restaurants need to disclose the mandatory minimum tip policy to customers at the start of their visit moving forward so patrons will fully understand they will be required to leave a minimum of 18 percent gratuity.

The plaintiffs in the aforementioned case, Kendall Ghee and Yang Shen, submitted complaints after computer tablets used to calculate and pay their bills at two Applebee’s locations near Times Square instructed them to “enter a higher amount” when they tried to tip less than 18 percent and 15 percent, respectively.  They called this an illegal “mandatory surcharge,” saying the restaurant should disclose this policy upfront, and sued on behalf of Applebee’s diners nationwide and in New York.

Judge Oetken said Applebee’s customers may pursue claims in the class action which alleged customers were unfairly surprised at the end of their visit with the tipping policy and were unable to leave the gratuity they wanted.  The plaintiffs filed their suit in March 2017 after eating at one of Applebee’s locations in Manhattan and being left with a mandatory 18 percent gratuity charge on their bills.  They argued that they should be allowed to tip what they believed to be fair and their lawsuit alleged unfair business practices, false advertising because the business needs to more openly disclose tip expectations, breach of contract, negligent misrepresentation, and unjust enrichment.

Photo by Kyle Mills on Unsplash

Although the restaurant disclosed that prices do not include taxes or gratuity in their menus, the plaintiffs felt this wasn’t enough to draw attention the fact that they would be mandated to tip a certain percentage.  The same argument was brought before the same court four years ago against Darden Restaurants, the parent group of Red Lobster and Olive Garden, and the case, perhaps surprisingly, resulted in a dismissal.

U.S. District Judge Katherine Polk Failla in Manhattan rejected claims by plaintiff Ted Dimond who said it was deceptive for Darden to refer to the mandatory tip it imposed in some restaurants as a “gratuity,” which he called a “voluntary act.”  Dimond, who frequented many of Darden’s locations, sought to represent diners like himself who felt “taken” by the tipping policy in a class action.  He alleged the restaurant company’s practices violated state consumer protection laws.

However, the judge said Darden, unlike Applebee’s, “conspicuously” showed the tip on its menus before diners placed their orders, and that diners were free to leave if they disapproved of the policy.  In the issued opinion, Polk also pointed out that it was not uncommon for New Yorkers, particularly in Manhattan, to tip between 18 and 20 percent, in general, when dining out, so it was unreasonable to believe they would not expect to do so.

However, Judge Oetken indicated in his opinion that “the disclosure was inadequate” in Applebee’s menus.  He wrote further that while “tipping is a well-accepting social norm [it] does not defeat plaintiffs’ claims.  [T]he social norm is that tips are expected but subject to the customer’s discretion.”  Unlike the Darden decision, therefore, the court ruled that patrons should be able to decide how much gratuity to leave.


Applebee’s customers suing chain for illegal ‘mandatory surcharge’

Federal judge allows mandatory tipping class action to proceed

Darden wins dismissal of New York lawsuit over automatic tips

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