Retailer Harrods is facing an employment tribunal brought by 29 of its restaurant workers regarding a mandatory £1-a-head cover charge which is not shared with staff as may be expected with a service charge. This is the first legal challenge in the UK to test what qualifies as a tip under the Employment (Allocation of Tips) Act 2023.
Predicting a case that is the first of its kind is difficult. The tipping legislation clarifies that qualifying tips, gratuities and service charges paid by customers must be allocated fairly to workers. However, it does not precisely define what constitutes a qualifying tip, gratuity or service charge.
From reviewing government Hansard data, the tribunal will likely focus on the perception of the customer in determining whether a cover charge falls within the legislation. Although the fee is distinct from the service charge, most customers would perceive it as equivalent, or akin to, a service charge. This is supported by customers opting out of the service charge following its introduction.
However, if Harrods can genuinely explain what this charge relates to, or outline that it covers a specific cost, beyond ‘the experience of sitting in Harrods’, then its case is viable. The fee is small and separate to the service charge and not a replacement of it, and it is imposed uniformly regardless of service quality. However, in press releases so far and general information in the public domain, Harrods has not adequately explained what the fee relates to, giving rise to the perception that it is some form of service charge and, therefore, falls within the legislation.
Tribunals will consider the following when interpreting the meaning of fair allocation as mentioned in the 2023 act: whether all workers who contribute to service receive a share; whether allocation is transparent; consistency across similar roles; whether workers have access to a written policy; and if there is a mechanism which facilitates employer discretion or retention.
Employer discretion under the act is narrow. For example, if Harrods’ policy states that the £1 cover charge is not a tip, this does not protect it if the tribunal determines otherwise. Employers may choose an allocation method, but they cannot retain the tips or allocate these in a way that is unfair. A compliant written policy will help protect employers in so far as it is legally necessary and demonstrates compliance with the law and provides transparency for workers.
The tribunal can order for re-allocation of any tips and make recommendations for future allocations. Crucially, payments can be made to any workers that are affected, not just the individual bringing the legal claim. The tribunal can also order the employer to compensate workers by up to £5,000 per worker. The case will be heard in September.
George Cornell is a solicitor in Wedlake Bell’s employment team
