Supreme Court case to be tried in 2023: The employers' ability make deductions in gratuities

by Fredrik Ø. Brekke


Silhouette of a man walking
On 10 and 11 January, the Supreme Court is to try the so-called Bristol/Plaza case, named after the well-known Hotel Bristol and Plaza Hotel in Oslo. The case concerns the limits for the managerial prerogative and the employers' ability to make deductions in gratuities for hotel staff on this basis. The Appeal Court found that the employees were entitled to keep the full amount received in gratuities, and that there was no basis to make these deductions based on the managerial prerogative to cover the employers' cost derived from the gratuities, which included the employers' contribution to the National Insurance and other administrative expenses. The employers' side has appealed both the Appeal Court's assessment of the evidence and the legal interpretation.

The background for the case

From 1 January 2019, changes to the legislation entailed that employers were obligated to keep lists of all gratuities received by their employees, both paid in cash or with card. Additionally, the employers were obligated to report to the tax authorities how much each employee received in gratuity, as well as make advanced deductions and calculate the employers' contribution to the National Insurance. This was opposed to earlier, when the employees themselves had to report the gratuity to the tax authorities, and there was no obligation for the employer to calculate the employers' contribution to the National Insurance.

These changes entailed additional cost for the employer, both due to the employers' contribution to the National Insurance and related to additional administrational work needed to keep the list of the gratuity received and to report to the amounts received. To cover these expenses, Hotel Bristol and Plaza Hotel deducted 26.5% and 40% respectively from the gratuity the employee's received. The employers based these deductions on the managerial prerogative.

Legal background

The managerial prerogative is not based on legislation, but is based on case law and is present i all employment relationships. The Supreme Court has defined the managerial prerogative as the employer's ability to "organize, lead, control and assign work", cf. the case Rt. 2000 p. 1602 ("Nøkk"). What decisions that each employer may make pursuant to the managerial prerogative, is affected by potential restrictions in legislation, collective bargaining agreement, the individual employment agreement and circumstances in the individual employment relationships.

In the Bristol/Plaza case, there were no collective bargaining agreements or other regulation of gratuity in the employees' employment agreements or other applicable agreements/policies. Despite there being no regulation on the matter in agreements or otherwise , the legal starting point is that the managerial prerogative does not give the employers a unilateral right to make negative changes to the financial benefits and payments to the employees. As gratuity is a financial right, the Appeal Court found that the employees were entitled to these payments without any deductions made by the employers. This is also based on the Supreme Court case Rt. 2008 p. 856 ("Theatercafeen"), where the Court tried whether the employer could make changes to what staff members who received gratuity given by the guests. The Supreme Court found that the employer had prerogative to unilaterally decide that the gratuity were to be shared between a wider portion of the restaurant staff, and not only the waiters.

The Theatercafeen case was decided based on the facts of the specific case, but may be used as a general argument that changes to the distribution of gratuity between the employees lies within the scope of the managerial prerogative. The case does not, on the other hand, provide any answers regarding whether the employees are entitled to keep the entirety of the gratuity without the employer being able to make deductions. This was also emphasized in the Appeal Court's decision in the Bristol/Plaza case.

Will a potential restriction against deductions only apply to existing employment relationships?

In the Appeal Court decision, a question was specifically raised relating to two employees whose employment had commenced after the implementation of the changes in 2019, where it was assessed whether these two employees had implicitly accepted the deductions. The Appeal Court ruled that they had not, as the employees were not made aware of the deductions prior to the employment commencing, in addition to the deductions having been found unlawful by the Appeal Court. Therefore, the two employees were also entitled to keep the entirety of the gratuity they received. This will also be a specific question for the Supreme Court.

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