James A. BEAMAN, Aubrey B. Barker, and Harold Warnock, as members of and constituting the Employment Security Commission of Arizona, Appellants,
WESTWARD HO HOTEL COMPANY, a corporation, Appellee.
[89 Ariz. 2] Wade Church, Atty. Gen., and Richard J. Daniels, Asst. Atty. Gen., for appellants.
Cunningham, Carson & Messinger, Phoenix, for appellee.
This action involves the attempt by the Employment Security Commission to collect certain contributions allegedly due from the appellee Westward Ho Hotel Company to the Unemployment Compensation Fund. The trial court held that none were due and entered judgment for the hotel. The Commission appeals.
The essential issue before the Court is whether certain payments made to employees of the hotel constitute 'wages'
within the meaning of A.R.S. § 23-622, which provides, in applicable part:
'A. 'Wages' means all remuneration for services from whatever source, including commissions and bonuses and the cash value of all remuneration in any medium other than cash. The reasonable cash value of remuneration in any medium other than cash shall be estimated and determined in accordance with regulations prescribed by the commission.'
The Westward Ho Hotel, in Phoenix, provides the facilities and services usually associated with a large hotel, including banquet, bar and meeting hall facilities. These [89 Ariz. 3] latter are available to the public for meetings and other gatherings where food and beverages are served. All such gatherings are arranged in much the same manner. A representative of the sponsoring group meets with the maitre d'hotel and agrees with him on the meal and other services to be provided by the hotel, and the price to be paid. Usually, if not indeed always, inquiry is made as to the method for rewarding the waiters who are to serve. Direct tipping is not permitted, but a 'service charge' amounting to a percentage of the cost of the food to be served is added to the price agreed upon between the parties. This percentage varies and is a matter of negotiation.
The hotel employs a number of regular waiters who serve at these gatherings. When the size of the group to be served makes additional help necessary, the maitre d'hotel lets that fact be known in the community of waiters. When persons from that group appear at the time specified, those selected for duty are employed by the hotel at a wage of $1.10 per hour. A count is kept of the number of meals served. That number is then multiplied by the cost per meal. The agreed rate of tip is applied to the result of this multiplication to determine the amount of money available for distribution among the persons participating in the service of the meal. The maitre d'hotel then obtains that amount from the hotel cashier. He distributes it among the waiters, the captains, the kitchen employees and certain others who have participated in arranging for and serving the meal. The amount given to each is entirely within the discretion of the maitre d'hotel. The hotel collects the amount from the customer in accordance with the agreement between them. If, for any reason, such collection is impossible, the maitre d'hotel then attempts to recoup the money from those to whom it has been distributed by him.
In addition, the hotel is host to two private clubs, which lease space in the building. Food and drink from the hotel's kitchens and bars are served upon order to members and their guests in each of the clubs. Such service is provided by employees of the hotel, regular and extra depending upon the requirements of the club. On the instructions of the club management, a service charge of fifteen per cent is added to each check for service so provided. The hotel periodically sends its statement for its services to each club, which thereupon advances its funds in payment thereof and presumably bills its members for the amounts so advanced. The tips collected in this manner are also disbursed daily, to the individual employees, both regular and extra, providing service to the clubs' members and their guests.
It is the amounts which are collected by the hotel as service charges, and paid by it to the waiters and other employees in [89 Ariz. 4] addition to their regular hourly wages, that are in question here. The Commission contends that they are wages on which contributions to the Unemployment Compensation Fund must be paid. The hotel contends that they are tips from the customer to the waiters in which the hotel has no interest, serving merely as a conduit through which the money passes from the donor to the donee.
Until 1947, the Statute which defined 'wages' read differently:
"Wages' means all remuneration for services from whatever source, including commissions and bonuses and the
cash value of all remuneration in any medium other than cash. [DELETED: Gratuities customarily received by an individual in the course of his work from persons other tha his employing unit shall be treated as wages received from his employing unit.] The reasonable cash value of remuneration in any medium other than cash[DELETED: , and the reasonable amount of gratuities,] shall be ...