Senor T's Restaurant v. Industrial Commission of Arizona

• Decision Date: 18 January 1982
• Docket Number: No. 15695-PR,15695-PR
• Parties: SENOR T'S RESTAURANT, Petitioner Employer, American Motorists Insurance Company, Petitioner Carrier, v. The INDUSTRIAL COMMISSION OF ARIZONA, Respondent, Ellen Osgood, Respondent Employee.
• Court: Arizona Supreme Court

Page 848

641 P.2d 848

131 Ariz. 360

SENOR T'S RESTAURANT, Petitioner Employer, American Motorists Insurance Company, Petitioner Carrier, v. The INDUSTRIAL COMMISSION OF ARIZONA, Respondent, Ellen Osgood, Respondent Employee.

No. 15695-PR.

Supreme Court of Arizona, In Banc.

Jan. 18, 1982.

Rehearing Denied March 2, 1982.

Jennings, Strouss & Salmon by Steven C. Lester, Phoenix, for petitioners.

Calvin Harris, Chief Counsel, Industrial Commission of Arizona, Phoenix, for respondent.

Law Offices of Chris T. Johnson, P.C. by Dennis R. Kurth, Phoenix, for respondent Emp.

HAYS, Justice.

This case is before us on a petition for review of a decision of the Court of Appeals, Division One, in Senor T's Restaurant v. Industrial Commission, 131 Ariz.App. ---, 641 P.2d 877 (App.1981). We granted review to consider whether tips received by an employee should be included in the calculation of an injured claimant's average monthly wage in a workmen's compensation award. We have jurisdiction pursuant to 17A A.R.S. Rules of Civil Appellate Procedure, rule 23, and A.R.S. § 12-120.24.

On September 8, 1978, respondent employee Ellen Osgood (claimant) sustained an industrial injury which was accepted for benefits by a Notice of Claim Status dated October 9, 1978. On December 7, 1978, The Industrial Commission determined that claimant's monthly wage was $425.80. A request for hearing on this finding was filed and granted. Claimant testified that she worked 35 hours a week as a cocktail waitress and part-time bartender. Her rate of pay was $2.75 an hour. In addition to this hourly wage, claimant stated that she earned approximately $100.00 per week in tips. The petitioner employer, Senor T's, had a tip-reporting system whereby a tip slip was attached to each timecard given to the employee, and the employee was expected to fill out the tip slip along with the timecard. Claimant testified that she was unaware of the tip-reporting system and did not declare any tips. On January 22, 1980, the administrative law judge issued his findings and award which concluded that claimant should have $400.00 per month in tip income included in her average monthly wage determination. In reaching this conclusion, the judge relied on Scott v. Industrial Commission, 122 Ariz. 169, 593 P.2d 919 (App.1978), which held that tips are to be included in the computation of the average monthly wage. After a request for review, the administrative law judge affirmed the decision. Petitioners then brought a special action to the Court of Appeals, Division One, seeking to set aside the award and asking the Court of Appeals to overrule Scott. The Court of Appeals affirmed the award, and declined to overrule Scott.

Prior to the Scott decision, the Court of Appeals had construed A.R.S. § 23-1041 as excluding tips from the definition of "monthly wage." ¹ See Springer v. Industrial Commission, 23 Ariz.App. 429, 533 P.2d 1166 (1975); Industrial Commission v. Jordan, 9 Ariz.App. 23, 448 P.2d 895 (1968). In both Springer and Jordan, the court expressed the opinion that assessment of premiums and payment of compensation on the basis of wages inclusive of tips was a matter requiring legislative action. In Scott, however, the court abandoned its earlier position and overruled itself, concluding:

"In our view, the results in Jordan and Springer fly in the face of statutory policy to fix compensation in relation to the economic loss sustained as a result of industrial injury."

122 Ariz. at 173, 593 P.2d at 923.

Finally, the Court of Appeals in the present case, in affirming the award of the administrative law judge, stated:

"We decline to (overrule Scott ), not because we agree that tips ought to be included in computing a worker's average monthly wage, but because the principle of stare decisis should now be followed on this question. We agree with the court in Jordan that the issue is legislative in nature and that it should be addressed in the legislative process."

131 Ariz. at ---, 641 P.2d at 878 (Opinion at 4-5).

Despite repeated invitations to the legislature to act in this area, § 23-1041(D) was reenacted without change following Jordan, Springer and Scott.

Initially, petitioners argue that the Scott decision amounted to judicial legislation and usurped powers reserved to the legislature. In support of this contention, they rely on dicta in Jordan and Springer and Judge Wren's dissent in Scott which all opined that the inclusion of tips within the definition of wages is a matter requiring legislative action.

We cannot accept petitioners' argument. One of the most elemental and basic functions of the judiciary is to interpret statutes passed by the legislature. A statute is open to interpretation where, in some respect, it is ambiguous. It is clear from a reading of § 23-1041(D) that the legislature did not expressly provide whether tips are to be included or excluded from the definition of "monthly wage"; therefore the statute may be reasonably considered ambiguous and is susceptible to judicial construction. Statutes which are ambiguous must be construed in view of the purposes they are intended to accomplish and the evils they are designed to remedy. State v. Berry, 101 Ariz. 310, 312, 419 P.2d 337, 339 (1966).

The underlying purpose of the Workmen's Compensation Act is to compensate an employee for lost earning capacity and to prevent the injured employee and his dependents from becoming public charges during the period of disability. Stephens v. Textron, Inc., 127 Ariz. 227, 619 P.2d 736 (1980); Prigosin v. Industrial Commission, 113 Ariz. 87, 546 P.2d 823 (1976). The goal of the Act is to determine a realistic pre-injury wage base which can serve as a standard of comparison with the post-injury earning capacity of the injured worker; the emphasis in setting a worker's average monthly wage is on what the employee has actually earned for his labors. Faith Evangelical Lutheran Church v. Industrial Commission, 119 Ariz. 506, 507, 581 P.2d 1156, 1157 (App.1978).

We believe it to be a matter of common knowledge that waiters, waitresses, bartenders and the like, in most instances receive a substantial portion of their earnings in the form of tips. The hourly wage paid by the employer is quite low and is often less than the federal minimum wage. The reason for the low rate of pay is that both the employer and employee contemplate that tips will constitute part of the compensation under the contract of employment. We conclude that the purposes and policy of the Workmen's Compensation Act indicate that the computation of an injured employee's average monthly wage in this situation should reflect the claimant's actual earnings: the base rate of pay plus tips. The remedial purposes of the Act would be undermined by an interpretation of § 23-1041(D) which excludes tips from the definition of monthly wage. As Judge Nelson observed in his dissent in Springer, supra :

"To fix wage-loss calculations upon their base wages would result in so low an award as to not only wholly fail in the Act's purpose of taking care of the major portion of the loss during the period of injury, but to certainly fail to provide the minimum compensation necessary to protect the injured employee and any dependents from becoming public charges."

23 Ariz.App. at 432, 533 P.2d at 1169. We also observe that the overwhelming majority of courts which have considered the question have determined that tips should be included as wages. See Larson, 2 The Law of Workmen's Compensation, § 60.12(a) at 10-564 (1981).

Petitioners argue, however, that the language of § 23-1041(D) indicates that the legislature did not intend to incorporate tips and gratuities within the average monthly wage calculation. § 23-1041(D) defines "monthly wage" as the "average wage paid during and over the month in which the employee is killed or injured." (Emphasis added). Petitioners maintain that the use of the word "paid" expresses a legislative intent that the "monthly wage" refers only to the actual amount of wages paid the employee by the employer. Petitioners fail to suggest, however, why the legislature would make such a distinction.

Application of petitioners' analysis to the restaurant business reveals the illusory nature of the argument. In the more typical situation, a waiter or waitress receives tips directly from the restaurant patron. Under petitioners' interpretation of § 23-1041, these employees would not be compensated for the loss of the tip earnings in the event of injury since the tips were not wages paid the employee by the employer. However, another method used by restaurants is to automatically add a stated percentage of the price of the meal as a gratuity to the final bill. The employee receives a wage directly from the employer which includes the gratuity paid to the restaurant. In this situation, the employee would be compensated for a loss of earnings which would include tip income, merely because it was received through the employer rather than directly from the customer. We cannot discern any plausible reason why the legislature would have intended to treat the employees in these examples any differently. We must agree with the respondent employee that an interpretation of § 23-1041(D) which results in such an absurd distinction would be subject to attack on equal protection grounds under the United States and Arizona Constitutions. In Petrafeck v. Industrial Commission, 191 Colo. 566, 554 P.2d 1097 (1976), the Colorado Supreme Court reached a similar conclusion, stating:

"... An injured employee who received a straight hourly wage has the total amount of that wage considered in his award. An injured employee who received some part of her earnings, under the 'contract for hire.' as tips does not receive equal treatment ... To exclude tips from an employee's average weekly wage requires that a penalty be imposed on all employees that depend, to some extent, on tips for their income.

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