In December 2008, a number of Hawaii hotels were sued for not informing customers that management was keeping some of the service charge or gratuity fee automatically added to banquets and food and beverage functions.

A Hawaii law passed in 2000 (HRS §481B-14] requires any hotel or restaurant that applies a service charge for the sale of food or beverage services to distribute the service charge directly to its employees as tip income or clearly disclose to the purchaser of the services that the service charge is being used to pay for costs or expenses other than wages and tips of employees.

The Hawaii law sought to protect consumers by preventing deceptive practices and unfair competition. It’s common for many restaurants to automatically add a service charge of 15-18 percent to a group of 6 or more people. Most hotels add a service charge to food and beverage functions at the hotel. Customers assume that all or 100 percent of this service charge is given to employees as tips. If management keeps some of the service charge, then they must inform their customers.

One of the lawsuits is against the Kahala Hotel & Resort in Honolulu. It was filed by a man who paid more than $15,000 for a wedding reception. He paid a 19 percent service charge on food and beverage, but the hotel did not tell him that management kept some of the service charge.

A second lawsuit was filed by the same law firm against the Hilton Hawaiian Village in Waikiki over not disclosing that 100 percent of service charges for a $22,700 wedding reception were not given directly to tipping employees.

The law firm is seeking to establish a class action lawsuit for all customers who paid service charges to the hotel for the last four years. The Hawaii law allows for triple damages plus attorney and court fees. However, if the lawsuits are won, it is not clear how the courts will calculate damages.

Workers sue 
In a third lawsuit, a former waiter at the Pacific Beach Hotel in Waikiki is suing hotel owner HTH Corporation for keeping part of the 17 percent service fee it charged for banquets and group functions. His suit seeks full payment of the service fee for the last four years for all tipping employees who worked at the Pacific Beach and suit seeks full payment of the service fee for the last four years for all tipping employees who worked at the Pacific Beach and Pagoda hotels owned by HTH.

Unlike the other lawsuits which involve customers, this suit seeks to establish workers as the injured party. This is the first such case filed in Hawaii and the VOICE will keep you informed of what happens when this case goes to trial.

Workers win tip pooling lawsuits

The states of California, New York, and Massachusetts have laws that prohibit management from requiring their employees to share tips with management or certain non-tipped employees. Employers may violate the law when they require tippooling arrangements which give some of the tips to supervisors and back-of-the-house workers who have no customer contact.

It took almost four years, but an October 8, 2004, lawsuit against Starbucks for allowing shift supervisors to share in a tip pool finally went to trial. It was certified as a class action lawsuit in 2006. In March 2008, a San Diego County Superior Court ruled against Starbucks and ordered the company to pay as much as $100 million to 120,000 current and former employees as their share of tips illegally paid to shift supervisors for the last eight years.

Starbucks maintains the shift supervisors are ordinary workers who should be allowed a share of the tip pool. The company has appealed the court’s ruling.

Similar cases are going to trial or have been settled in other states.

How the economic crisis affects us—from page 1

exception is contributions to the union’s staff pension fund, which has to be increased to make up for losses in the stock market.

The officers met with the union’s elected rank-and-file trustees on January 5, 2009, to explore other ways to reduce expenses. The officers and trustees agree that layoffs or cuts in wages and benefits of personnel would only be made as a last resort.

One cost cutting measure will reduce two-day meetings to one day. This is why the March 2009 Local Executive Board meeting is scheduled for one day. The Executive Committee and trustees will also try to complete their work in one day meetings.

Hawaii’s tourism industry will be hit hard as two of our largest and most important sources of visitors, Japan and California, are in recession. Military spending is expected to grow and the construction industry will benefit as work begins on the rail system for Honolulu. However, this economic activity is mostly on Oahu and does little to benefit the neighbor islands.

Hawaii Island has been hardest hit by the downturn in visitor counts— almost every hotel on the island lost revenue.

Some of the drop in visitor counts in 2008 was due to the sudden closure and bankruptcy of Aloha Airlines and ATA, the relocation of two NCL cruise ships out of Hawaii, and record high fuel prices which caused airlines to add fuel surcharges to their fares. In mid 2008, Japanese visitors, for example, were paying Japan Airlines an extra $282 in fuel charges alone. JAL has lowered the surcharge to $82 in January 2009. Korean Air Lines and other carriers have also lowered their fuel surcharges for 2009.

Maui’s visitor industry was both up and down. Some hotels lost business and some hotels gained business. The people who can afford to stay at luxury hotels continue to go on vacation even during recessions, and ILWU organized hotels on Kauai and Lanai did better than most. However, there is growing evidence that even the very wealthy are beginning to cut back on their spending.

Understanding what caused the economic crisis—from page 3

monthly payments. Housing prices also began to fall and many new home owners found they owed more money than their homes were worth.

Home owners did what they could to keep up with payments—they took a second job, cut back on their spending, moved in with their parents and rented their house, or sold their homes at a loss. Some were able to refinance their loans, but about 25 percent of the sub-prime borrowers just stopped paying their loans.

Mortgage companies and banks took possession of these homes, but as housing prices fell, many of these properties were sold at a loss. Over 200 mortgage companies went bankrupt.

About 1 million ARM mortgages are scheduled to reset each year in 2009 and 2010, leading to more foreclosures and bankruptcies.

Lack of government regulation and Collateralized Debt Obligations (CDOs) were the primary cause of the crisis. They were a new product pushed by the biggest and most respected investment banks such as Lehman Brothers, Bear Stearns, Wachovia, and Goldman Sachs that boasted yearly returns of 10% and even 20%—compared to 5 percent or less from the best business stocks.

Rating agencies such as Standard and Poor gave these bonds their highest rating of AAA because they believed them to be sound.

By the end of 2006, it is estimated that US investment banks sold close to $2 trillion of CDOs in the global market. Pension funds bought as much as $500 billion of these CDOs.

In April 2007, sub-prime borrowers began to default on their loans, leading to the bankruptcy of New Century Financial which specialized in sub-prime mortgages.

Banks began taking a closer look at their investments to determine their potential losses from sub-prime defaults. The banks realized there was no way to assign a value to these CDO investments because they were bundled together with other assets, and no one knew how much of it was backed by sub-prime mortgages, which could be anywhere from 45 to 70%.

By 2007, the questionable value of mortgage-backed securities became a major problem. How much of these securities were based on sub-prime mortgages? How many of these subprime mortgages would foreclose at a loss? Foreclosures can take months to complete but usually result in a loss of around 20-25 percent. Individual CDOs are based on hundreds or even thousands of mortgages and it was nearly impossible to quickly place a real value on the CDO. The CDOs couldn’t be sold and couldn’t be cashed out. For all practical purposes, CDOs had to be valued as worthless.

Lehman Brothers became the first casualty when they were forced into Chapter 11 bankruptcy in September 2008. The company had invested heavily in mortgage backed securities and was supposed to worth $600 billion. Over 100 hedge funds used Lehman as their broker.

Merrill Lynch also found itself writing down billions in losses. The company was bought by Bank of America.

Many of these companies had purchased Credit Default Swaps which was supposed to limit their losses. But AIG and Lehman Brothers had sold billions of dollars of Credit Default Swaps and didn’t have the cash to pay. Lehman Brothers went bankrupt and AIG would also have gone bankrupt if the US government had not given them an emergency loan of $85 billion.