An influential Denver restaurant owner faces a lawsuit from one of his employees — and plenty of complaints from others — about the “service charge” that customers pay at places like Highland Tap and Burger and the high-concept Japanese restaurant Kumoya.
Culinary Creative Group is one of countless restaurant groups that have implemented mandatory extra charges on restaurant bills. The idea is that instead of just choosing how much to tip, customers will pay a set surcharge — 20 percent, in this case — all of which is “distributed to staff in an equitable manner,” according to CCG’s menus.
Restaurant owners say service charges are a way to spread the love, instead of allowing servers and bartenders to get all the benefit of big tips. They’re often described as a way to ensure chefs, dishwashers and others get more.
“We created a system where there's a path forward for people,” CCG founder Juan Padró said in a recent interview with Denverite. The extra charge allows all employees to “make a really good wage," he said.
But the service surcharges have set some servers steaming. The big reason: 30 percent of the service charge money is used to pay managers.
One of those servers, Marianna White, is suing the restaurant group, saying it misled customers and servers and misused the money. She and other servers say that their wages fell far short of what they were led to expect, and they blame the surcharge.
“People think that they're paying 20 percent so that everyone is getting paid on the floor — and they're not,” said White, a former server at the CCG restaurant Kumoya.
Her lawyer, Adam Harrison, argues that the service charges were really just tips in disguise, and that by taking a slice, management was stealing money that was never meant to pay for managers’ wages or any other expenses.
“Nationwide, there are certain companies that are renaming something that has always been a gratuity, that's always been a tip, giving it a different name, and then taking that as license to do whatever they want,” said Harrison, of HKM Employment Attorneys.
Padró disputes that the charge is misleading or has been misappropriated. He and his lawyer argue that the messaging on the menus — about the surcharge going to “staff” — is accurate because managers are staff members.
“We do give a stipend to our manager with that, but that's our income. It's our money. We're taxed on it. You can't tell me what to do with income that I'm taxed on," Padró said.
What is a service charge?
Service charges have become more popular lately — for restaurant owners, at least.
As of 2024, 16 percent of restaurant owners used fees and surcharges, according to a National Restaurant Association survey, up slightly from 2022.
They’ve been used to pay for everything from health care to “kitchen appreciation.”
And they are an increasingly tempting option for restaurant owners, who are looking for ways to get more revenue without raising menu prices. Restaurateurs often say they’re a way to defray rising labor costs.
In Denver, they’ve appeared at places from bartaco to Casa Bonita, which tacks an extra 15 percent on top of bills that already include a minimum admission cost.
The change has drawn fierce objections from front-of-house staffers. Surcharges often eat into tip money, since customers may see the surcharge as a replacement for tips.
They also are drawing anger from customers. When Mayor Mike Johnston recently promoted the idea of service charges, the backlash was fast and furious.
Service charges have been divisive within the restaurant industry. In some cases, implementing a charge has resulted in restaurants losing 90 percent of their front-of-house staff, due to the drop in tips, said Sonia Riggs, CEO of the Colorado Restaurant Association.
“It's worked in some restaurants. It's worked very well for some restaurants. Others, it has not worked at all,” she said in an interview.
Stable pay or false promises?
The restaurant industry was a natural fit for Marianna White.
“You get the feeling of interacting as a team. You get to … make people happy and feel taken care of — even in fine dining,” she said.
She was working as a server at Jax Fish House when another fine-dining opportunity arose: a new, high-end restaurant serving Japanese cuisine in north Denver
“The ad for Kumoya seemed perfect. It was close to where I was living in the lower Highlands. It was advertised as $35 I think, to $45 or $50 an hour,” she said. “The food was incredible. The food was really tasty.”
The restaurant is decked with cherry flower blossoms, painted brick and accents of glass and stone. The menu ranges from sushi and sashimi to boiled eggplant and fatty tuna that has been dry-aged for 34 days
“People left other well-regarded places to come open [the restaurant]. We were going to be doing something … really challenging and rewarding,” White said.
Management introduced the service charge at an onboarding meeting, White said.
The restaurant leaders disclosed that 30 percent of the service charge money would stay “within Kumoya … to support the restaurant,” White recalled. But other former Kumoya servers, like Faith Lindstrom, said they were not told at first that managers would get a cut.
White knew that the policy would hurt her tips, but she liked the idea of taking care of the whole staff.
“It's not fair that a lot of times, cooks in Denver don't get paid well for the amount of work they do in the length of the shift,” she said.
Training for the restaurant took weeks, with employees scraping through at minimum wage, they said. Finally, the customers started rolling in — but the expected wages did not, according to White and Lindstrom.
Instead of the expected $35-plus an hour, wages averaged out closer to $25. Over the roughly three months she worked at the restaurant, White said she was never paid more than $1,000 after tax for a week, even as she sometimes sold up to $4,000 of food and drink in a night.
“No matter what happened, paychecks stayed the same, which was under $1,000 per week,” White said. “It was really, really confusing.”
CCG tried putting fewer people on shifts, but it didn’t seem to make a difference.
“I’m selling to get a higher check so that my percentage, my tip percentage, was going to be higher,” Lindstrom said. “It was shocking to have thousand dollar [pay] checks.”
CCG said that wages depended on how the business was performing, claiming many employees actually did better than expectations.
Complaints from other restaurants
White and others started talking to other CCG employees and found similar stories. Hailey Jamieson had similarly been promised wages of up to $35 an hour at Fox and the Hen, but instead found herself averaging in the lower $20s.
“I just don’t like being taken advantage of. I don’t like my tips being stolen when these business owners should be on top of what was legal — it’s their responsibility to know how to pay their employees and to do it right and do it legally,” she said.
White and others were further incensed by the mandatory arbitration agreements that employees signed when they were hired, which Harrison contends contained numerous unlawful provisions.
Robertson counters that CCG's arbitration policies "are consistent with the agreements utilized throughout the industry, and arbitration provides considerable benefits to all parties involved."
Harrison has been building a case against CCG beyond just White's lawsuit, with ads for his investigation of CCG’s wage practices appearing on Instagram and elsewhere.
Should managers get the money?
Harrison has made a name for himself in wage and hour law with previous cases involving tips and wages, including an especially impactful case on rest breaks.
Harrison argues that CCG’s description of the surcharge is deceptive because it promises the money goes to "staff."
“I don’t believe that there’s an American who would expect 30 percent of something they think they're paying to staff, would expect that money to be paid out as a special gift to managers,” he said.
The distinction is “common sense,” he said.
But CCG and its lawyer argue that there was no law broken. Attorney Michael Robertson argued that “staff” can include managers in the context of Colorado law, pointing to how the word is used in a labor department opinion.
Padró said it’s important to use the money to pay managers.
“In our industry, the biggest issue that we've had is that tipped employees make more than their managers, and there's no incentive for ‘A’ players to move into management,” he said. “So we created a system where there's a path forward for people.”
CCG’s restaurants also include an additional line for optional tips, making it clear that the 20 percent surcharge is not a tip, Robertson argued.
Riggs, of the restaurant association, said it’s common for restaurants to keep a portion of the service charge revenue for themselves.
“The front of house folks tend to see a slightly lower pay. The back of the house tend to see a higher pay, and … then some of that goes to the restaurant, just to help them stay in business and maneuver through their price fluctuations,” she said.
David Seligman, a labor attorney who is not involved in the case, said it could boil down to the difficult question of whether a service charge can be perceived as just another kind of gratuity.
“Very often, customers perceive service charges as being like a tip, and as being used for workers and going to workers and for the benefits of workers,” he said. “There are lots of cases like these … I think this service charge-tip issue is an emerging and really important one.”
Seligman has previously worked on cases with Harrison.
The final straw
At Kumoya, the servers grew suspicious, White said, about whether they were getting their share of the money since there was little variation in paychecks.
“This doesn't seem ethical, it doesn't seem fair, it doesn't seem transparent. It seemed like we got promised a higher pay that CCG knew we would never see,” she said.
Robertson said that the service charge money is automatically moved into the proper account and distributed to employees based on a scale.
The final straw for White and some other workers came in January 2024, when CCG effectively reduced base wages for tipped employees. The company moved some workers to the tipped minimum wage, which allows restaurateurs to pay a few dollars an hour less in base wages, as long as employees are also getting tips.
It happened “about the same time Juan Padró had been posting on Instagram about, like, the insanely expensive meal he was having in Mexico,” White said.
Padró has pushed back on criticism of his service charges, saying that some complaints came from servers and bartenders who simply didn’t want to give up tips for the benefit of other employees.
“When push comes to shove,” he said, “they're like, ‘Well, not at my expense, yeah.’”
Picking up the pieces
White’s case began in court but is temporarily stayed as the parties work out disputes about the arbitration agreement. Meanwhile, the lawsuit has begun to attract attention in local food circles.
No matter how it turns out, White and others said that CCG’s wages fell short of expectations and left them in financial trouble.
“I took time off school and left a job where I maybe wasn't happy, but was financially stable … and I lost a lot of my savings just trying to keep myself afloat. I didn't manage to save anything for the semester that I took off school to help open Kumoya,” White said.
“That was horrific, I am financially traumatized by that, it ruined my life,” Lindstrom said. “I couldn’t pay my bills but my general manager was driving a brand new car and offering to buy me groceries because I could not eat.”
Both White and Lindstrom left Kumoya in January 2024, and said that much of the first wave of staff was gone within six months of opening.
White wants to see greater regulation of service charges, making it easier for workers to see where and how the money’s being spent.
“It doesn't seem like it's being tracked, or that you have to answer for how it's spent in any real way, which opens up a lot of space for abuses,” she said.
White’s lawsuit aims to force CCG to pay back alleged unpaid wages, penalties, interest and attorney’s fees.
