March 18, 2025|Publications
March 18, 2025 | Supreme Court of New York, Kings County | Unpublished Opinion
Executive Summary
In an unpublished decision, Justice Saul Stein of the Supreme Court of New York, Kings County, ruled on a motion to dismiss a putative class action alleging that the Gerber Group unlawfully withheld gratuities from employees by charging customers an “Administrative Fee” for special events. Plaintiffs claimed the fee was actually a gratuity under New York Labor Law § 196-d and Department of Labor regulations. Defendants argued they disclosed in contracts that the fee was not a gratuity and was used to offset operating costs. The court held that defendants’ disclosures did not meet regulatory requirements and denied most of the motion to dismiss, allowing the claims to proceed against several Gerber Group entities while dismissing claims against Nearly Ninth with plaintiffs’ consent.
Relevant Background
Plaintiffs Megan Mayes, Isiah Duckson, Raquel Heslop, and Sade Bess, on behalf of themselves and similarly situated employees, filed a class action against Gerber Group Limited Partnership, After Midnight Company, LLC, and affiliated entities operating venues including Mr. Purple, The Campbell, and Nearly Ninth. Plaintiffs alleged that defendants charged customers an “Administrative Fee” for special events, but withheld that money instead of distributing it as gratuities to employees, in violation of Labor Law § 196-d and related regulations.
Defendants previously sought dismissal of the original complaint, but the parties withdrew that motion after plaintiffs amended their pleadings. The amended complaint added plaintiff Bess and defendant GG W38 LLC, operator of Nearly Ninth. Defendants then renewed their efforts to dismiss, arguing that contractual provisions defeated the gratuity claims, that certain plaintiffs were not employees, and that some affiliated entities had no employment relationship with plaintiffs.
Decision
The court first addressed the presumption created by 12 N.Y.C.R.R. § 146-2.18(b) that “any charge in addition to charges for food, beverage, lodging, and other specified materials or services … is a charge purported to be a gratuity.” Justice Stein explained that because defendants admitted to charging administrative fees for special events, the presumption applied. Defendants attempted to rebut this presumption by submitting a sample contract stating in bold that “[t]his Administrative Fee is not a gratuity and is not distributed in whole or in part to any service employee … [but] retained by the Company to offset administrative and operational costs.” The court acknowledged that the contract contained such language but found that defendants had not met the additional requirements of 12 N.Y.C.R.R. § 146-2.19(c), which mandates disclosure “in the contract or agreement with the customer, and on any menu and bill listing prices” and in a font “no smaller than a 12-point font.” The court noted that defendants offered only one contract and no menus, invoices, or bills, and had not demonstrated compliance with font requirements, citing Button v. Metro. Club, Inc., 187 A.D.3d 630 (1st Dep’t 2020). Because defendants failed to rebut the statutory presumption across events, the court denied the motion to dismiss on documentary evidence.
The court also addressed whether plaintiff Heslop could pursue claims against GG Campbell LLC, even though she worked at Campbell events through a staffing agency. Defendants argued that she was not their employee, but the court applied the test for employment under New York law, which asks whether the alleged employer controls “the results produced, or the means used to achieve the results,” with control over the means being “the most important consideration.” Colon v. Compass Grp. USA, Inc., 188 A.D.3d 800, 801–02 (2d Dep’t 2020) (quoting Athenas v. Simon Prop. Grp., LP, 185 A.D.3d 884, 885 (2d Dep’t 2020); Abouzeid v. Grgas, 295 A.D.2d 376, 377 (2d Dep’t 2002)). Courts weigh factors such as whether the worker set her own schedule, received benefits, was on the payroll, and remained free to take other jobs. Bynog v. Cipriani Grp., Inc., 1 N.Y.3d 193, 198 (2003). Justice Stein concluded that because this determination is fact-intensive, it would be “improper to resolve these issues based merely on the pleadings” and denied dismissal of Heslop’s claims at this stage.
Defendants also sought dismissal of plaintiffs’ independent causes of action under 12 N.Y.C.R.R. §§ 146-2.18 and 146-2.19, arguing those regulations do not create a private right of action. Plaintiffs relied on Membrives v. HHC TRS FP Portfolio, LLC, 196 A.D.3d 560 (2d Dep’t 2021), which suggested otherwise. Justice Stein noted that the damages would be identical under either theory and declined to dismiss those claims, leaving the issue for later proceedings.
The court next considered defendants’ argument that Gerber Group LP and After Midnight LLC could not be liable as employers. Plaintiffs alleged that the Gerber entities operated as a single employer, pointing to overlapping ownership, centralized operations, common payroll practices, and marketing materials describing Gerber Group as the “owner-operator” of multiple venues. The single employer doctrine imposes liability where two nominally separate entities form “a single integrated enterprise.” Courts apply four criteria to determine whether companies are sufficiently interrelated: “(i) interrelation of operations; (ii) centralized control of labor relations; (iii) common management; and (iv) common ownership or financial control of the entities in question.” Lockwood v. CBS Corp., 219 A.D.3d 1326 (2d Dep’t 2023). Justice Stein held that plaintiffs alleged enough facts to satisfy this standard at the pleading stage, and he declined to dismiss the single employer claims.
Finally, the court dismissed claims against GG W38 LLC, operator of Nearly Ninth, with plaintiffs’ consent. It also dismissed claims by plaintiff Bess, who acknowledged at oral argument that she no longer pursued them. The court otherwise denied defendants’ motion to dismiss.
Looking Forward
Although this opinion arose at the pleading stage, it packs multiple layers of law that matter to both franchisors and franchisees in the hospitality industry. On gratuities, the court reinforced that New York applies a strict presumption that administrative fees are tips unless businesses comply with detailed disclosure rules in contracts, menus, and bills. This puts direct pressure on franchisees who handle day-to-day billing practices, and it underscores the importance of training and compliance systems within a brand. On joint employment, the court relied on Colon v. Compass Group USA, Inc. and Bynog v. Cipriani Group to hold that fact questions about “control” over workers cannot be resolved early. Plaintiffs regularly use this theory to try to extend liability to franchisors when brand standards are recast as employment control, while franchisees face direct liability as the immediate employers. On the single employer doctrine, the court cited Lockwood v. CBS Corp. to allow claims to proceed based on allegations of shared ownership, management, or operations. Plaintiffs may invoke this doctrine to argue that franchise systems operate as an integrated enterprise, even when the business model depends on legal separation.
Different states address gratuities and service charges in very different ways, but this case illustrates how New York law, combined with broad joint employment and single employer theories, creates fertile ground for class claims. For both franchisors and franchisees, the lesson is that even a short opinion on initial pleadings can signal significant litigation risks across multiple fronts. Clear separation of roles, rigorous compliance with gratuity disclosure rules, and careful documentation of franchisee independence remain essential tools to reduce exposure.
Thomas O’Connell is a Shareholder at Buchalter APC and Chair of the firm’s Franchise Practice Group. For questions about this article or media inquiries, you can contact Tom at toconnell@buchalter.com.
This communication is not intended to create or constitute, nor does it create or constitute, an attorney-client or any other legal relationship. No statement in this communication constitutes legal advice nor should any communication herein be construed, relied upon, or interpreted as legal advice. This communication is for general information purposes only regarding recent legal developments of interest, and is not a substitute for legal counsel on any subject matter. No reader should act or refrain from acting on the basis of any information included herein without seeking appropriate legal advice on the particular facts and circumstances affecting that reader. For more information, visit www.buchalter.com.
