BC Employment Standards Tribunal Awards “Service Charges” as Gratuities to Employees
October 6, 2025
Article by:
Jacky Xu
Previously printed in the LexisNexis Labour Notes Newsletter.
Star Limousine Service Ltd. (Re), 2024 BCEST 67
Star Limousine Service Ltd. (“Star”) is a limousine business operating in Vancouver, British Columbia.
In 2022, two limousine drivers filed separate complaints against Star for unlawfully withholding gratuities in contravention of section 30.3 of the Employment Standards Act, R.S.B.C. 1996, c. 113 (the “ESA”).
The Employment Standards Branch investigated the complaint and issued an investigation report with the following findings:
- Star charged its customers a “Service Fee” equivalent to 20% of the price of the booking.
- The Service Fee was charged by default to the vast majority of bookings.[1]
- Star’s financial statements indicated that three-quarters of the Service Fee went to the drivers and one-quarter was retained by Star.
- On rare occasions (less than 5% of all fares), customers provided the drivers with additional gratuities in addition to the 20% Service Fee and the drivers kept 100% of those additional gratuities.
- During the relevant periods of time, Star’s total revenue from the Service Fee amounted to $253,900.94 and, of that amount, $190,710.37 was paid as gratuities to Star’s drivers.
- The difference between the Service Fee collected and gratuities disbursed was $63,190.57 (the “Withheld Gratuities”).
Based on these findings, a delegate of the Director of Employment Standards (the “Delegate”) determined that the entire Service Fee was a “gratuity” within the meaning of the ESA. Star had been unlawfully withholding gratuities from all 23 of its drivers.
The Delegate ordered Star to pay a total sum of $71,299.60, which included the Withheld Gratuities, interest on the Withheld Gratuities as well as a $500 penalty for the contravention of the ESA.
Appeal
On appeal, the Employment Standards Tribunal (the “Tribunal”) upheld the Delegate’s determination. The Tribunal held that the entire 20% Service Fee was indeed a gratuity as defined by the ESA.
The Tribunal reached its conclusion on the grounds summarized below.
Perhaps most importantly, a Star representative admitted that the Service Fee was a gratuity during the investigation. This was a critical admission.
Even in the absence of that admission, however, the Tribunal found that the Service Fee fell within the definition of “gratuity” under the ESA. More particularly, section 1(1) of the ESA defines “gratuity” to mean:
(c) a payment of a service charge or similar charge imposed by an employer on a customer in circumstances in which a reasonable person would be likely to infer that the customer intended or assumed that the payment would be redistributed to an employee or employees ….
On this definition, the Tribunal determined that the Delegate correctly concluded a “reasonable person” would infer the Service Fee to be a mandatory gratuity imposed by Star. This conclusion was reinforced by the fact that very few customers — less than 5% of all fares — paid any further amount above the Service Fee to the driver. The Tribunal found that those customers likely viewed the Service Fee to be a gratuity and, on that basis, chose not to pay any further amount beyond the 20% charge. Further, Star’s own evidence was that the Service Fee was intended to cover a driver’s gratuity to a substantial degree.
Takeaway
Employers should be careful about how service charges are presented to their customers. If gratuities are incorporated into a service charge, there is the risk of colouring the entire service charge as a gratuity and, in general, employers would be well advised to avoid using service charges as a means of obtaining gratuities.
What constitutes a gratuity within the meaning of the ESA is determined on an objective “reasonable person” standard. Employers should take into account the perspective of their customers when implementing a surcharge such as the Service Fee. Specifically, they should ask themselves if a customer would likely perceive the charge to be a gratuity.
Employers might also consider identifying service charges and gratuities as separate items on a bill in order to try and mitigate the risk.
[1] Exceptions were made only for institutional clients such as airlines which required regular transport from airports to nearby hotels.
While every effort has been made to ensure accuracy in this article, you are urged to seek specific advice on matters of concern and not to rely solely on what is contained herein. The article is for general information purposes only and does not constitute legal advice.
October 6, 2025
Previously printed in the LexisNexis Labour Notes Newsletter.
Star Limousine Service Ltd. (Re), 2024 BCEST 67
Star Limousine Service Ltd. (“Star”) is a limousine business operating in Vancouver, British Columbia.
In 2022, two limousine drivers filed separate complaints against Star for unlawfully withholding gratuities in contravention of section 30.3 of the Employment Standards Act, R.S.B.C. 1996, c. 113 (the “ESA”).
The Employment Standards Branch investigated the complaint and issued an investigation report with the following findings:
- Star charged its customers a “Service Fee” equivalent to 20% of the price of the booking.
- The Service Fee was charged by default to the vast majority of bookings.[1]
- Star’s financial statements indicated that three-quarters of the Service Fee went to the drivers and one-quarter was retained by Star.
- On rare occasions (less than 5% of all fares), customers provided the drivers with additional gratuities in addition to the 20% Service Fee and the drivers kept 100% of those additional gratuities.
- During the relevant periods of time, Star’s total revenue from the Service Fee amounted to $253,900.94 and, of that amount, $190,710.37 was paid as gratuities to Star’s drivers.
- The difference between the Service Fee collected and gratuities disbursed was $63,190.57 (the “Withheld Gratuities”).
Based on these findings, a delegate of the Director of Employment Standards (the “Delegate”) determined that the entire Service Fee was a “gratuity” within the meaning of the ESA. Star had been unlawfully withholding gratuities from all 23 of its drivers.
The Delegate ordered Star to pay a total sum of $71,299.60, which included the Withheld Gratuities, interest on the Withheld Gratuities as well as a $500 penalty for the contravention of the ESA.
Appeal
On appeal, the Employment Standards Tribunal (the “Tribunal”) upheld the Delegate’s determination. The Tribunal held that the entire 20% Service Fee was indeed a gratuity as defined by the ESA.
The Tribunal reached its conclusion on the grounds summarized below.
Perhaps most importantly, a Star representative admitted that the Service Fee was a gratuity during the investigation. This was a critical admission.
Even in the absence of that admission, however, the Tribunal found that the Service Fee fell within the definition of “gratuity” under the ESA. More particularly, section 1(1) of the ESA defines “gratuity” to mean:
(c) a payment of a service charge or similar charge imposed by an employer on a customer in circumstances in which a reasonable person would be likely to infer that the customer intended or assumed that the payment would be redistributed to an employee or employees ….
On this definition, the Tribunal determined that the Delegate correctly concluded a “reasonable person” would infer the Service Fee to be a mandatory gratuity imposed by Star. This conclusion was reinforced by the fact that very few customers — less than 5% of all fares — paid any further amount above the Service Fee to the driver. The Tribunal found that those customers likely viewed the Service Fee to be a gratuity and, on that basis, chose not to pay any further amount beyond the 20% charge. Further, Star’s own evidence was that the Service Fee was intended to cover a driver’s gratuity to a substantial degree.
Takeaway
Employers should be careful about how service charges are presented to their customers. If gratuities are incorporated into a service charge, there is the risk of colouring the entire service charge as a gratuity and, in general, employers would be well advised to avoid using service charges as a means of obtaining gratuities.
What constitutes a gratuity within the meaning of the ESA is determined on an objective “reasonable person” standard. Employers should take into account the perspective of their customers when implementing a surcharge such as the Service Fee. Specifically, they should ask themselves if a customer would likely perceive the charge to be a gratuity.
Employers might also consider identifying service charges and gratuities as separate items on a bill in order to try and mitigate the risk.
[1] Exceptions were made only for institutional clients such as airlines which required regular transport from airports to nearby hotels.
While every effort has been made to ensure accuracy in this article, you are urged to seek specific advice on matters of concern and not to rely solely on what is contained herein. The article is for general information purposes only and does not constitute legal advice.