Tipped Employee Sues Over Missed Deferrals

The employee says Hyatt Corp.’s policy to only pay tips in cash violated the terms of the plan, per its definition of compensation for elective deferrals.

A participant in Hyatt Corp.’s defined contribution retirement plan has sued the company saying the company breached its fiduciary duties by not applying his deferral election for the plan to all his pay.

According to the complaint, the plan document defines compensation as “the amount reported for a participant on IRS Form W-2, Box 1 for the plan year.” The complaint notes that “wages” in Form W-2, Box 1 includes tips received by an employee during the course of his employment.

However, Hyatt has a policy of requiring tipped employees to be paid all charged tips in cash rather than through payroll, interfering with their ability to defer income under the terms of the plan, the lawsuit alleges. “Because Hyatt mandates that credit card tips, which make up a significant portion of certain employees’ compensation, be paid out to employees at the end of the shift rather than through payroll, there are frequently insufficient amounts paid through payroll to cover the entirety of the employees’ deferral election for the plan,” the complaint states. “In these instances, the affected employees are only able to make after-tax contributions to the plan to make up for the shortfall.”

The plaintiff alleges that Hyatt’s mandatory tips policy “has the effect of discriminating against employees who receive tips as part of their income when compared to employees who do not receive tipped income.”

According to the complaint, in 2018, the plaintiff elected to defer 5% of his compensation, but due to the tip policy, the amount taken from his paycheck to contribute to the plan was 4.93%. In 2019, he increased his deferral election to 10% of pay, but the amount taken from his paycheck was 8.99%. On June 2, 2020, he updated his deferral percentage to 50% of his compensation, and on August 14 of that year, he changed his deferral election to 8% of compensation. However, only 6.96% of his gross pay for all of 2020 was deferred to the plan.

The lawsuit says Hyatt breached its fiduciary duties under the Employee Retirement Income Security Act by failing to follow the terms of the plan and failing to comply with the plaintiff’s deferral elections.

Hyatt Corp. has not yet responded to a request for comment about the lawsuit.