Small Party, Big Tip

Darden Restaurants & New York Lawsuit Over Automatic Tipping

Darden Restaurants, which is the parent company of the Olive Garden and Red Lobster restaurant chains, recently had a lawsuit against them dismissed regarding the allegation that they were illegally surcharging an automatic 18% gratuity to all their dining checks. The suit also claimed that the failure of the restaurant outlet locations to list their beverage prices on their menu was “deceptive”.

The plaintiff in this case claimed that the added surcharge was a violation of state consumer protection laws. Darden categorized the mandatory tip as “gratuity” which the plaintiff countered was unfair because a tip is a “voluntary act”. The suit brought some interesting questions to the forefront. Does a corporation have the right to add that type of surcharge and then potentially provide bad service to the customers? Is it no longer the right of the customer to determine the gratuity for a service, in this case a meal, based upon their own discretion? Should that added gratuity be levied on all parties when the standard restaurant protocol was that 18% surcharges were applied to large parties?

The judge in the case, when reading the final verdict, used the word “conspicuously” to describe the manner in which the restaurant outlets owned by Darden boldly and explicitly demonstrated the gratuity policy on their menus. In the viewpoint of the judge, diners could simply leave if they did not want to pay the 18% gratuity.

In addition, the judge continued by stating in essence that New Yorkers often leave tips for meals in the 18 — 20% range. Therefore, by this line of reasoning they should not feel tricked into tipping at the lower end of that range. The judgment also addressed the fact that New York City has their own laws regarding menu charges and that private diners cannot use them as a basis to sue a restaurant chain.

Beverage Spike

The court ruling also dealt with the second component of the suit which concerned the failure of Darden to list beverage prices on their menu. The judge dismissed that claim by including in the judgment an explanation that customers could reasonably get those prices by asking the server or another employee before ordering the beverage.

In my own experience, I have found that the hidden charge for beverages at restaurants to be increasingly frustrating. They do not list the prices on the menu for those items or for alcoholic beverages, and if you forget to ask, that check comes with some increased costs that I feel are very inflated. The beverage area has become a profit generator for restaurants to offset the overall pullback consumers have demonstrated in not ordering higher ticket entrees or frequently skipping desert.

In my opinion, I think the beverage prices should be listed on the menu for both soft drinks and alcoholic or specialty beverages at every restaurant in a uniform manner.

Guest Relations

The lawsuit and the decision by the court in this Darden case did not include a critical portion of the revenues made by New York City restaurants: out of town visitors. It is no secret that New York City is one of the most popular tourist destinations in the world, and is the financial center of the world as well.

The number of visitors from all over the United States frequently get “sticker shock” at the prices of products and dining in New York City. In my own travels around the country I know that many people from other parts of this country do not tip at the 18 — 20% range. These tourists and visitors will be impacted by this 18% gratuity that is being automatically added to the bills by the Darden owned restaurants.

The tourist “draw” for Red Lobster and Olive Garden is that they are chains that visitors from other areas of the country have a great deal of familiarity with and they are family friendly restaurants ideal for family units with young children. These customers will then be impacted by an added 18% gratuity on top of the escalated cost of New York City restaurant prices.

The premise of the judge in this case, at the core of the matter, is accurate in that the customer could get up and leave because the additional gratuity is so prominently displayed on the menus. The practicality of that scenario is where that rationale becomes problematic.

A good example would be a family with two small children is visiting Manhattan from Indiana, they decide to go to the Olive Garden in Times Square for dinner. The restaurant is busy so in this case they wait 90 minutes for a table. Then they get the menus and learn of the additional gratuity charge. The children are starving and tired, do you really believe that family will leave that restaurant and go wait in line someplace else at that point?

Off Base

The judge in this case mentioned in the language of the decision that New York City has their own laws dealing with restaurant surcharges and that private diners cannot use them as a basis for a lawsuit. In light of that viewpoint, then what can a private diner use as the foundation for a lawsuit? That question was never posed to the court.

In the case where an individual or group of individuals determines that something is infringing on their rights, or is a questionable practice, then they are entitled to due process. In this situation I am not sure what the acceptable grounds for this particular suit would be. I also cannot speculate as to the discussions that the plaintiff and his legal team had on deciding the course of action to bring the lawsuit to court.

However, the judge did reference New York City as having their own set of laws regarding restaurant surcharges. One of those laws prohibits a surcharge to be added to any party smaller than eight people. Darden owned restaurants have been adding this gratuity to all parties, regardless of the size.

When asked about this practice as it relates to the law referenced above, a Darden spokesperson said they add the gratuity as a “convenience for our guests”. Would you agree with that statement? What happens if you get lousy service, would that gratuity still be a “convenience” for you as a guest?

I am not sure why the Darden owned chains of restaurants in question are able to add this surcharge when New York City law prohibits it for smaller parties. I can fully understand the added gratuity for larger parties because it takes a longer amount of time to turn that table over and to service larger parties.

However I tend to agree with the plaintiff in this case, as it relates to smaller parties, that tipping is a “voluntary act”. I maintain the belief that individual diners should be able to make a determination on the gratuity based upon the level and quality of the service they receive. In time, maybe the big Darden owned chains will come to recognize that rationale as well.

(Some background information courtesy of Reuters)

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