CALIFORNIA GETS SERIOUS ABOUT TIP THEFT

For restaurant workers, this is important news: tips belong to employees — not owners, managers, or the house. Tips are earned by workers for their service, and California law treats them as the employee’s exclusive property. For restaurant owners, however, this shift is a clear warning. Practices that may have gone unnoticed or unchallenged in the past are now squarely in the enforcement crosshairs, with regulators and plaintiffs’ attorneys paying closer attention than ever.

In 2026, tip theft is no longer viewed as a minor technical violation. It is increasingly treated as a serious wage-and-hour offense, carrying mandatory repayment, penalties, and potential PAGA exposure. Here’s what’s changing — and what it means for both workers and restaurants across California.

WHAT IS TIP THEFT UNDER CALIFORNIA LAW?

Under California Labor Code section 351, tips are the sole property of the employee who earned them. This rule is strict and leaves very little room for interpretation. Employers may not use tips as part of their business revenue or redistribute them in ways that benefit management.

Specifically, employers may not:

• Keep any portion of employee tips, directly or indirectly

• Use tips to offset wages or satisfy minimum wage obligations

• Require tip sharing with owners, managers, or supervisors, even if they occasionally assist with service

• Deduct tips to cover breakage, customer walkouts, shortages, or business losses

• Skim, round down, or delay payment of tips, including credit card tips

 Tip theft occurs whenever an employer diverts, withholds, skims, or misallocates tips, whether intentionally or through poorly designed or unlawful policies. Importantly, an employer’s intent does not matter — even “longstanding,” “industry standard,” or “house” practices can still violate the law.

Many workers are surprised to learn that tip theft can occur even when tips are pooled or distributed weekly. If the structure of the tip pool is unlawful, or if ineligible individuals receive tips, the practice may still constitute tip theft under California law.

For restaurants, this means informal or loosely enforced tip practices pose real legal risk. For workers, it means the law is clear: your tips are your money, and the law provides strong protections to recover them when they are taken unlawfully.

WHAT’S NEW IN 2026: STRONGER ENFORCEMENT AND PENALTIES

Beginning in 2026, California has expanded the Labor Commissioner’s authority to more aggressively investigate and penalize tip theft violations—particularly in the restaurant and hospitality industry.

Key changes include:

• Direct enforcement authority by the Labor Commissioner

• Mandatory restitution of all stolen tips

• Civil penalties in addition to repayment

• Increased scrutiny of tip pooling arrangements

• Greater exposure under PAGA (Private Attorneys General Act)

 This means tip theft cases are no longer just private disputes—they are now a priority enforcement issue.

COMMON TIP THEFT PRACTICES RESTAURANTS STILL GET WRONG

Despite clear law, tip violations remain widespread. Common illegal practices include:

🚫 MANAGERS OR SUPERVISORS TAKING TIPS

Anyone with hiring, firing, or disciplinary authority cannot participate in tip pools—even if they occasionally serve tables.

🚫 USING TIPS TO COVER MINIMUM WAGE

Tips cannot be counted toward minimum wage obligations in California. Employers must pay the full minimum wage before tips.

🚫 IMPROPER TIP POOLS

Tip pools must be limited to employees who are part of the chain of service (e.g., servers, bussers, bartenders). Including kitchen staff or managers often violates the law.

🚫 WITHHOLDING TIPS FOR WALKOUTS OR BREAKAGE

Employers may not deduct tips to cover customer walkouts, mistakes, or losses.

🚫 SKIMMING CREDIT CARD TIPS

While employers may deduct actual processing fees in limited circumstances, skimming or rounding tips is illegal.

WHY RESTAURANTS FACE INCREASED RISK IN 2026

Restaurants are uniquely vulnerable to tip theft claims because:

• Tip practices are often informal or poorly documented

• Employees may not know their rights

• Turnover is high, increasing whistleblower risk

• Violations often affect entire groups of workers, triggering PAGA claims

In 2026, enforcement agencies are prioritizing industries with systemic violations—and restaurants are at the top of that list.

WHAT THIS MEANS FOR RESTAURANT WORKERS

If you work in a restaurant and believe your tips are being mishandled, it’s important to know that California law is on your side. Tip theft is still common in the restaurant industry, and many workers are unaware that practices labeled as “normal” or “house policy” may actually be illegal.

Tips belong to you — not the business. Owners, managers, and supervisors are prohibited from keeping or sharing in employee tips, even if they assist with service. Tips are earned by employees and must remain with employees.

If your employer has taken or misallocated tips, you may be entitled to back pay, penalties, and interest. These amounts can add up quickly, especially when unlawful practices have been in place for extended periods.

Tip theft claims are often not limited to one worker. Because tip practices typically affect entire shifts or teams, claims can frequently be brought on behalf of coworkers who were impacted by the same policy.

You should also know that retaliation is illegal. Employers may not punish workers for asking questions, raising concerns, or asserting their rights related to tips.

Many workers are surprised to learn that even long-standing “house policies” may be unlawful. The length of time a practice has existed does not make it legal. If something about your tips doesn’t feel right, it’s worth asking questions—you have rights and legal protections.

WHAT RESTAURANTS MUST DO NOW TO AVOID PENALTIES

To reduce exposure in 2026, restaurants should:

• Audit all tip and tip-pooling practices

• Remove managers and supervisors from tip pools

• Ensure minimum wage is paid independently of tips

• Train management on lawful tip handling

• Maintain clear, written tip policies

 Failing to correct tip practices now can result in significant penalties later, especially if violations span months or years.

TALK TO AN EMPLOYMENT LAWYER

At Stilz Law we represent California workers facing unlawful contracts, wage violations, and retaliation. If your employer is enforcing or threatening an illegal taking of tips, we can help you understand your options and protect your rights.

GET A FREE CONFIDENTIAL CONSULTATION

Contact Stilz Law today to learn your rights.
We’ll review your situation, explain your legal options, and stand by you every step of the way.

TIP THEFT IN CALIFORNIA – 2026 FAQs

Can managers take tips in California?
No. Under California law, managers and supervisors may not keep tips or participate in tip pools, even if they occasionally help serve customers. Anyone with authority to hire, fire, discipline, or direct employees is prohibited from taking tips.

Can restaurant owners take a portion of tips?
No. Restaurant owners may never keep any portion of employee tips. Tips belong exclusively to the employees who earn them.

Are tip pools legal in California?
Yes, but only if they are structured correctly. Tip pools may include employees who are part of the direct chain of service, such as servers, bussers, and bartenders. Including managers, supervisors, or unrelated staff may violate the law.

Can restaurants use tips to pay minimum wage?
No. California does not allow a “tip credit.” Employers must pay the full minimum wage separately, and tips must be paid on top of wages.

Can a restaurant deduct tips for walkouts, breakage, or mistakes?
No. Employers may not take tips to cover customer walkouts, broken dishes, register shortages, or similar losses.

What happens if a restaurant steals tips?
Restaurants may be required to repay all stolen tips, pay civil penalties, and face enforcement actions by the Labor Commissioner. Tip theft claims may also lead to PAGA penalties affecting all impacted employees.

Can a restaurant fire me for complaining about tip theft?
No. Retaliation for raising concerns about tips, wages, or labor law violations is illegal under California law.

KEY TAKEAWAY

Tip theft is no longer a low-risk violation in California.

In 2026, restaurants that mishandle tips face mandatory repayment, civil penalties, and potential PAGA liability—while workers have stronger tools than ever to enforce their rights.