The proprietors of three Mayfair clubs and restaurants, including Annabel's and Harry's Bar have failed in a test case legal battle over the status of tips paid to restaurant staff.
The proprietors of the London premises had hoped to win a ruling that the tips should count towards the minimum wage paid to staff.
They challenged an Employment Appeal Tribunal (EAT) ruling that tips paid by credit card, debit card or cheque to restaurant staff through a tronc system, where one employee fairly distributes the amount received to all the staff, do not form part of their minimum wage.
Backing that decision today, Lord Justice Rimer said: "Many would see no injustice in this: they would wonder why employers should be entitled to use discretionary tips - probably intended by most customers to go direct to the staff - to satisfy their obligations to pay the national minimum wage."
In June last year, the EAT backed a claim by Her Majesty's Revenue and Customs that such tips, distributed by an employee known as a troncmaster from a separate bank account, should not be taken into account for the purpose of determining whether restaurateurs were paying their staff the national minimum wage.
The ruling left Annabel's (Berkeley Square) Ltd, George (Mount Street) Ltd and Harry's Bar Ltd facing the prospect of having to pay extra to employees to meet their minimum wage entitlements.
The three turned to London's Court of Appeal where they sought to overturn that decision, in a test case, which the judge today said "raises an issue of interest to the whole hospitality, catering and entertainment industry".
Under the law, all tips paid by credit or debit card and by cheque become legally and beneficially owned by the restaurant proprietor. If the employer pays a corresponding sum direct to an employee, this sum counts towards the minimum wage obligation.
However, the taxman argued, and the EAT found, that it was different under the tronc system, where a troncmaster is employed to ensure that the tips are fairly divided between all members of staff entitled to them.
Yesterday the Government announced it would be outlawing the practice of making up staff wages with non-cash tips outright from October this year.
By court reporter
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