WORKERS who receive regular tips but do not officially declare them are being warned that they risk losing out on basic employment rights.

It follows the case of a former manager at Coia's cafe in Glasgow whose unfair dismissal claim was thrown out because he and his bosses had an agreement where he did not declare all of his tips to Her Majesty's Revenue and Customs (HMRC).

The ruling has come as a surprise to those working in the hospitality industry, many of whom were unaware that pocketing cash tips had such an impact on workers' rights.

Ryan James, chairman of the Glasgow Restaurant Association, said: "I'm really surprised to hear this, it's certainly nothing that I've been aware of.

"Generally most restaurants nowadays are following the HMRC guidelines on it - tips are collected and put through the payroll. Taking tips without declaring them is a lot less common than it used to be because so many transactions are done on credit cards now, there isn't as much cash kicking about.

"However, it's a business to business decision and people in the industry will have to look at their processes and change them accordingly to ensure that everyone is protected."

The Coia's case involved former restaurant manager Gary Lawlor, of Motherwell, who was trying to claim he had been unfairly sacked by his bosses at the East End cafe.

However, when employment judge Robert Gall realised he was receiving more tips than he was declaring - in agreement with the restaurant owners - the case was dismissed as his contract had been "tainted by illegality".

The restaurant - which has been open in Glasgow for more than 80 years - operated a system where all tips were collected and then split between workers every four weeks.

Staff were given a payslip detailing what they had been paid in tips, but it transpired that Mr Lawlor and several other members of staff had an agreement with the Coias that they would declare less than they actually received.

Leading employment lawyer, Brian Napier QC, claimed workers who do this put themselves both at risk of being prosecuted for tax avoidance and losing out on protection from unfair dismissal, contract breaches and pay and condition disputes.

He said: "There's a legal rule which basically says if a contract is illegal or tainted by illegality then it cannot be relied on. For example, people who are working illegally might be presented with an argument that they cannot proceed with any claim they may try to make under employment legislation.

"In this case it's tax evasion, and while people perhaps take a more lenient view of workers not declaring tips, it's still tax evasion and it's pretty likely to result in this argument at a tribunal.

"If you break the law in this way, then you know one of the risks is that you could be done by HMRC, but this is a hidden risk that you might not realise.

"You're not just putting yourself at risk of being chased for tax evasion, you might also be unable to exercise employment rights if you're breaking the law in how you carry out your work."

The advocate said that the issue is not new, but warned that a lot of people are still unaware of the risks, adding: "The people who lose out are usually the ones who've got very little."

Mr Lawlor, who had worked at the cafe since November 2004 and is married to the niece of owners Afredo and Tonia Coia, was dismissed in Autumn last year.

It remains unclear why he was sacked and what his argument for unfair dismissal was.

Employment consultant Julie Barnett, who represented Coia's Cafe, said: "The Coias were completely unaware of the wider implications of this practise in terms of its impact on employee contracts."

Mr Lawlor was unavailable for comment.