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Tips in Business Transaction:

A Moral Issue Iniobong Udoidem,Ph.D.

ABSTRACT. Has one the right to expect favor because he or immediate answers to these questions. I then put the
she has given tip? Or is one obligated to bend the rule of law question to myself, which I now intend to discuss in
in favor of his friend from whom he has received tip or this paper, "What is the moral status of a tip as a
favor? human transaction?" In the discussion, consideration
The paper undertakes an analysis of the different tip will be given to the analysis of the different tip
situations, the different forms of tip and attempts to show in
situations and the different forms of tip. Tips will
what sense the term tip is applicable and finally examines
then be examined in relation to the individual
the usefulness of tip and its possible effect on a moral
participants and the social context. And finally, issues
The paper argues that tip considered as a transaction will be raised concerning the influence of tips on the
wherein money or favor is offered for the purpose of gaining moral conscience. Hopefully, the discussion will help
an advantage illegally is nothing but bribery and as such clarify or at least raise consciousness concerning the
immoral. Tip as a "forced gratuity" is argued to be an perplexing problem of tips in human or business
organized exploitation. The paper then concludes that tip in transactions.
its proper sense of voluntary and gratuitous transaction can
maximize individual utility and enhance social solidarity,
noting at the same time, that its possible adverse effect on Tip situations
the moral conscience is worth taking cognizance of.
The dialogue between Socrates and Crito in one of
Plato's dialogues, concerning the rightness and
Tips, a human transaction invoMng a "donor" and a wrongness of the jailer's action in letting Crito into
"donee" or "recipient", are so common that what the prison cell prior to visiting hours raises an
they really are and their moral status is rarely interesting philosophical issue regarding the moral-
discussed or questioned. The result is that tip givers ity of tips. Crito argues that the jailer owed him the
and recipients have little or no idea of the moral right of passage into the cell to see Socrates because
implications of their action. A cab driver in Wash- he (Crito) had given him (Jailer) a tip) This brief
ington, D.C. once told me that he does not stop to dialogue raises the question of the status of what we
carry certain classes of people because they do not call in our daily conversation a tip. Is a tip something
give tips. Jokingly, I put these questions to him, that one gets or receives for doing a service to the
"What is the relationship between tip, the taxi fare other? Or is it something that one receives in order
that you are entitled to, and the services that you that he -will perform a service afterwards? On the
render? What right do you have to penalize people part of the giver, is a tip given as a reward for service
for not giving tips? Are the passengers obligated received or a fee paid for a service to be received
to give tips?" Neither the cab driver nor I had later?
In our daily conversations and discussions, we do
S. Iniobong Udoidem is Lecturer at the Department of Philosophy at not normally raise these questions or make distinc-
University of Port Harcourt. He has written severalarticleswhich tions between the status of tips in relation to givers
have been published in Prtsence Africaine and The Review and receivers. Tips have come to be accepted as a
of Metaphysics. way of life of a "civilized" society. Whenever one

Journal of Business Ethics 6 (1987) 613-618.

~) 1987 by D. Reidel Publishing Company.
614 Iniobong Udoidem

goes to any restaurant or hotel, the reality of tips is and suppose C is the customer that requires the
brought to one's consciousness. In some restaurants services of A. A is obligated to provide the services
or business transactions, a tip is pre-calculated and for which C is billed and C is obligated to pay A for
included in the bill, while in certain situations, it is the services rendered.
left to the free will and generosity of the customer. The curious situation is whether there is any
But, while this practice is accepted as normal, its contract or exchange relationship between C and B,
effect on the moral sense of the participants is un- that is customer and employee. It is certain that
discussed. For example, if one is a regular customer while B may not have a direct contract or obligation
at a particular restaurant, and the waiters and to C, he (t3) fulfills his obligations to A by rendering
waitresses know him as a customer who does not the appropriate services to C. It would seem that
give tips, then you can be sure that he will receive there is no legally constituted exchange relationship
low grade treatment. But if on the other hand, he is between B and C. However, there is an "open
noted as a customer who is generous with tips, then exchange" relationship which I characterized as a
thank heavens, there will be many mansions for him "tip situation". Out of the generosity of C, in
in his favorite restaurant. One can therefore under- appreciation of the good services rendered by B, C
stand Crito's argument that the jailer knows him gives a tip to B and B accepts, and a relationship
(probably as one who gives tips), that he (Crito) is established. Another "tip situation" could be a
comes to the prison often and that he is in the habit transaction that involves the imparting of useful
of giving tips to the jailer and therefore the jailer is information for the purpose of gaining advantage in
obligated to let him in. investment or information about the stock market.
The role of the tip here becomes morally ques- Or it might even take the form of what Harold
tionable, especially when one notes that it was not L. Johnson describes as "Lubricants" for business
yet the official hour for entry when the jailer channels, where "underpaid employees supplement
allowed Crito to enter. If a tip is a reward given or their salaries with grease to keep the gears of
received for a service performed, then it could be business moving." 2
seen as desert and could perhaps be argued to be Having thus indicated the various tip situations,
morally defensible. But if it is a reward given or our next concern is to raise the question of the effect
received for a service that is yet to be done, and its of tips on the moral conscience of participants. Has
receipt or non-receipt becomes a determining factor one the right to expect favor because he has given a
in the quality of the service that is to be adminis- tip? Or is one obligated to bend the rule of law in
tered, then the tip becomes morally questionable. favor of his friend from whom he has received tips
Before we proceed, it might be useful to give the or favor? The claim of this paper is that the practice
structure of what is meant by a tip context in of offering and accepting tips has some unsung
contemporary business relations. In many business ramifications on the moral conscience of the partici-
transactions, the network of relations is triadic, pants whether in international or domestic business
namely: relations. An analysis of some of these ramifications
will be the subject of the next section. But before
(A) Management (Employer), examining the implications, effects and ramifications
(t3) Employee, of tips, it is worthwhile first to discuss the different
(C) Customer(Consumer). forms or types of tips.

In this situation, there is a contract or exchange

relationship between A and B. In so far as B is the T i p as b r i b e r y
employee of A, B is obligated to perform the duties
for which he or she was employed, and as long as The practices of tipping and bribing seem to be twin
those duties are performed, A is obligated to pay B sisters, since they both involve giving and receiving
for his or her services. There is also a contract or of something because of an actual or perceived favor.
exchange relationship between A and C. For exam- However, from the moral standpoint one of them
ple, let A be the management of a restaurant or hotel seems to be more abhored and grievous than the
Tips in Business Transaction 615

other. Both tip and bribery will be examined to see intended forced gratuity, he ordered a stop payment
how they are related and how a tip could be a bribe. on the cheque he had issued for A. The plaintiff (A)
Bribery may be defined as an act of illegally then went to the Peoples' Court to sue for forty
giving money, favor or promise to a person (or dollars ($40.00), claiming that the defendant had
persons) in a position of trust to influence his or her agreed to pay the said amount for the limousine
judgment or conduct. Putting it differently, it is any service. The defendant argued that when he agreed
transaction that serves to induce or influence an to pay forty dollars ($40.00), he did not know that a
action from its just course and directing it to one's forced gratuity was involved. He argued that the
advantage. It takes on many fanciful expressions such plaintiff should have told him about the actual cost
as "kick-backs" or "grease" for keeping the gears of of service, and that the tip should have been or is a
business moving. Though abhorred in all cultures gratuituous transaction and not something that is
and seen as an impediment to progress and honest forced on the customer. He offered to pay thirty-five
business transaction, business men themselves have dollars ($35.00), the actual cost of the service. But
found it to be an unavoidable "sin". As Henry Lane Judge Wapner ruled in favor of the plaintiff arguing
and Donald Simpson have noted, refusal to par- that the plaintiff has the right to itemize his charges
ticipate means losing contracts and failure in busi- as he likes, that since the defendant had agreed to
ness, and participation on the other hand means pay the charge that was quoted for him, he should
moral degeneration and loss of a sense of value. 3 But honor the contract and pay the said forty dollars
a tip generally is not equated with a bribe or bribery. ($40.00) irrespective of how the plaintiff itemized the
How then is a tip related to bribery? bill.
A tip, considered as a transaction wherein money The question that concerns us here is not Judge
or favor is offered for the purpose of gaining an Wapner's verdict but the morality of a forced
advantage illegally is nothing but a bribe. The tip gratuity or tip. Had the defendant the right to know
case cited of Crito in Plato's dialogue was an outright of the tip prior to the contract? In the case of forced
bribe which perhaps was acted out in the text to gratuity as with the case at hand, and other such
en-force the moral character of Socrates as one who transactions, what is the difference between the
preached against bribery and corruption in Athens. service charge and the tip charged? Perhaps the
The practice of"pay-offs" and "kick-backs" to secure service charge could be reasoned to be a form of tip,
contracts and business deals though often classified if a tip were defined as an exchange for service
as tips are nothing but acts of bribery? If a tip is rendered. If this were the case, it would be redun-
different and distinct from bribery, what then is a dant and superfluous to have the different distinc-
tip? tions and itemizations on the bill. Why couldn't
there be just one bill, namely, the service charge? For
example, if the Limousine service man had made the
Tip as f o r c e d g r a t u i t y
service charge to be forty dollars ($40.00) if that is
In a recent nationwide television show, Judge what he wanted, it should have been understandable.
Wapner of the California Peoples' Court had a case The issue of tip should have been left to the
titled "the case of the forced gratuity". In the case, generosity of his customer. He would have had
the plaintiff A was a limousine service dealer. The nothing to lose whether his customer gave him a
defendant B entered into contract for limousine tip or not. But to have premeditatively charged for
service with A. A had told B that all service charges a tip without the pre-knowledge and possibly the
would be forty dollars ($40.00) to which B agreed. consent of his customer, makes the transaction
But after the service had been rendered, B dis- morally questionable. It seems that it involves a
covered on the itemized bill that the actual cost of denial of a form of knowledge that is due to the
the service was thirty-five dollars ($35.00) and the customer in any honest business transaction. As
remaining five dollars ($5.00) was a tip which A who Jacques P. Thiroux has noted, honesty and truth-
was also the driver of the limousine, had calculated fulness in the provision of necessary information
and added to the bill without the consent or prior that is due the customer about a particular product
knowledge of the customer. When B discovered this or service is a mark of a morally sound business
616 Iniobong Udoidem

relation, s But even if the customer were informed directly affects the participants. For example, in a
about the inclusion of the tip-charge in the bill, has transaction involving the cab driver and the pas-
the management or producer any right to demand senger, the medium of exchange is the taxi fare and
tips from a customer? The customer, because of his the service rendered, or in the case of a restaurant
need of the service or product, is forced to give a tip. situation, the medium of exchange is between the
Such a transaction, which is not in anyway different bill paid and the services rendered.
from the formally constituted service charge, ceases A tip transaction, unless understood as money or
to be gratuituous but becomes an organized rip-off something given for a direct service rendered or to
and a fertile ground for the cultivation of bribery. be rendered, ceases to be an exchange transaction in
However, since one is described as a service the way explained by both Macneil and Sahlins. As
charge and the other as a tip, it follows somehow already argued, if a tip is understood as a formal
that there must be a difference between the two. exchange for a good or service rendered, then it is
While the one is described as the service exchange, not different from other bills or institutionalized
the other should be regarded and treated as a fares.
gramituous gesture. It would seem then that there is a different way of
viewing tips which makes them a form of exchange
but not in the popular sense. The difference is that a
T i p as e x c h a n g e o r g r a t u i t u o u s gift true tip does not involve immediate reciprocity at
least to one of the parties. For example, when one, in
Exchange could be defined as "the giving up of addition to paying his bill at the restaurant or in
something in return for receiving something else,"6 addition to paying his cab fare gives a tip to the
or any "vice-versa movement" between or among waiter or cab driver, such a gesture is a gratuituous
individuals. 7 This exchange transaction may occur act, "a surplus exchange" stemming from the donors
either in a "specialized ~' sense or in a "nonspecialized" perception of the recipient as being in need of extra
sense. The specialized exchange is the product of economic assistance. Neither party will view the
division of labor and takes the structure of trade by transaction as being materially wasteful but as
barter or exchange of productions. Marshall Sahlins economically advantageous. A tip therefore in this
has given an example of such a transaction of the context and in its true sense is a unidirectional
Tami Islanders who make wooden bowls, the south- transaction, where the element of material exchange
ern villagers who make pottery, the Busana who is donative. Its function is the enhancement of social
are large food producers, and each exchanges its solidarity and the maximization of individual utility.
specialty with the others. 8 The "nonspecialized"
exchange according to Ian Macneil would take the
form of "any vice-versa movement among people Tip, social solidarity and individual utility
not resulting from specialization of labor."9 He cites
the example of the giving of a present, say a pig A tip here is understood as a gratuimous unidirec-
to a kinsman with the understanding that at some tional gift. The position of this paper is that in every
appropriate occasion in the future a pig will be gift situation, whether unidirectional oi reciprocal,
returned. Such exchanges he argues would remain there is always a dimension of enhanced social
unspecialized if the understanding was that the solidarity and increased individual utility. However,
kinsman could return at his option either a pig or since it had earlier been remarked that a tip as a
some other commodity of roughly the same scale of reciprocal transaction is conflicting with other forms
value, l° Kristen Hawkes also notes that a nonspe- of exchange relationships, the discussion here will be
cialized exchange may occur when similar tasks are limited to a unidirectional tip transaction.
shared, for example, when people pair off to do each When a person gives a tip as a reward for a
other[s haying?' perceived good service received, the probable inten-
Exchange, therefore, whether "specialized" or tion is to re-enforce a behavior of good service, such
"nonspecialized", has one common characteristic, that even if the donor may not come that way again,
that is, it involves some kind of reciprocity that the recipient may always persist in good services to
Tips in Business Transaction 617

every customer or larger community. This type of consideration. The situation here is that which could
transaction can enhance social solidarity. It is an be characterized as the "tension of motives". The
undemanding form of transaction which by its waiter at the restaurant, for example, renders services
nature neglects the obligations of reciprocity nor- with the hope of getting tips (individual utility), the
mally found in other forms of exchange transaction. management of the business is interested in making
It enhances good behavior for future transactions a profit. Even though a tip has been argued to be a
with other customers. Another intention is to con- gratuituous gift - with no obligations, its influence
tribute to the maximization of individual utility. In or effect is enormous. When there are no tips, the
relation to the recipient, the transaction improves quality of service could be adversely affected. Where
his or her economic situation. But in relation to the the quality of service is below standard, customers
donor, although there is no direct exchange or diminish in number, no profit is realized in business.
reciprocal relationship, he finds such "exchange Where therefore, the self-interest of the employees
surplus" deals useful in that they give him a sense varies with that of the management, there is tension
of self-fulfillment as a generous person, and the of motives. On the part of the customer or donor, it
transaction accords him reputation, prestige and is either a sense of guilt or rejection. On the part of
power. the employee or potential tip recipient, it is apathy
and a negative attitude to duty.
By way of curbing this tension, some institutions
Tip and the moral conscience and business managers have institutionalized tips
and pre-calculate them in the bill. This arrangement
It must also be examined here whether a tip has raises the problem of "forced gratuity" and as already
any adverse moral effect on the conscience of the argued, it makes customers pay more than the value
participants. For example, if the recipient feels that of the service or product received. Managers often
the donor has not given him or her a commensur- argue that the pre-calculated tip gives incentive to
able tip for services rendered, the tendency is to be employees, giving them a feeling or sense of being
suspicious towards other customers and he may not cared about by management. But couldn't the
render good services since he lives with the con- incentive be given through a raise in pay? Could
sciousness that he had been cheated in previous it be that the management recognizes that the
transactions. In a sense, one could argue that a tip employees are underpaid and therefore it introduces
dehumanizes the recipient and makes him live only tips for the augmentation of low wages? Whichever
in the world of transactions with material exchanges. way it is viewed, it seems reasonable to remark
There exists a constant tension and psychological that managements exploit employees and rip-off
warfare between the customer and the recipient. customers by institutionalizing tips. In other words,
What if the donor had no more than just what he organized or institutionalized tips are instruments of
tipped? What if he had no more but just enough to exploitation.
pay for the "bill of exchange"? Has he any obligation
to apologize or explain to the potential recipient why
he is unable to give a tip? Can he be considered as
owing the recipient in the future? What if the
recipient refuses to render proper services to the
customer during another business encounter? Was It must be admitted that the essay is a mere
the recipient really cheated by not being given a tip? questioning exercise. A beach combing on the shores
Has he (the recipient) any justification to retaliate of a wide ocean of a multifaceted moral issue. Yet an
by an attitudinal response? What effect will this examination of the pebbles and shells collected,
"transaction tension" have on the whole business namely, the questions raised, may be of value for
enterprise? These are some of the questions that are future reflection on the subject of the moral status of
crucial to responding to the issue of the moral status tips. The paper has so far examined the different tip
of tips. situations, the different forms of tips and attempts t.o
The last of the issues raised above is worth further show precisely in what sense the term "tip" is
618 Iniobong Udoidem

applicable, and finally examines the usefulness of tips 3 Henry W. Lane and Donald G. Simpson, 'Bribery in
and their effects on the moral conscience. International Business: Whose Problem Is It', Journal of
The paper then concludes that tips considered as BusinessEthics 3, 1984, pp. 35-42.
transactions wherein money or favor is offered for 4 For further discussion on bribery see Harold Johnson,
the purpose of gaining an advantage illegally, is 'Bribery in International Markets: Diagnosis, Clarification,
nothing but bribery and as such is immoral. A tip and Remedy', Journal of Business Ethics 4, 1985, pp, 447--455;
'Bribes and Business', WallStreetJournal, August 2, 1979, p. 1;
as "forced gratuity" is argued to be an organized
Berry Richman, 'Stopping Making Payments Under the
exploitation and therefore morally questionable. A
Table'. Business Week, May 22, 1978, p. 18; Neil H. Jacoby,
tip is then argued to be a form of exchange that is Bribery and Extortion in World Business, Macmillan Publica-
gratuituous, unidirectional, and devoid of direct tions, New York, 1977.
reciprocation. Such transactions the paper has argued 5 Jacques P. Thiroux, Ethics: Theory and Practice, Macmillan
are capable of enhancing individual utility as well as Publishing, New York, 1985, pp. 328-338.
social solidarity. The paper finally admits that lan R. Macneil, 'Exchange Revisited', Ethics 96, No. 3,
despite the advantages that tips in their proper sense 1986, p. 567.
have, their possible adverse effects on the moral 7 Marshall Sahlins, Stone Age Economics, London, Tavistock,
conscience of the participants is worth taking note 1974, p. 567.
of. 8 Ibid.,pp. 285--291.
9 Ian Macneil. Ethics 96, p. 571.
lo Ibid.
~ Kristen Hawkes, 'Cooperation in Binumarien: Evidence
of Sahlins Model', Mau, n.s. 12 (1977), pp. 459--483.

1 Socrates: I wonder that the jailer was willing to let you in.
Crito: He knows me now, Socrates, I come here so often, and
Department of Philosophy,
besides, I have given him a tip. (Crito, 43b, Church's
University of Port Harcourt,
Translation). P.M.B. 5323,
2 Harold L. Johnson, 'Bribery in International Markets: Port Harcourt,
Diagnosis, Clarification and Remedy', Journal of Business Nigeria.
Ethics 4, 1985, p. 448.