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Starbucks Reversal Stirs Employment Law Community

By Teresa Rider Bult, Litigation News Associate Editor – July 28, 2009

The California Court of Appeals’ recent reversal of an $86 million verdict against Starbucks in a tip allocation case shocked the employment law community, but it leaves open the question of which employees are “agents” and whether such employees can share in tips.

In Chau v. Starbucks Corp. [PDF], several baristas at Starbucks brought a class action under California Labor Code Section 351, alleging that because the company required tips left in collective tip boxes to be shared with the shift supervisors who worked beside them, Starbucks improperly distributed the tips.

The plaintiffs alleged that shift supervisors, who had some minor supervisory responsibilities, were “agents” of Starbucks and therefore could not share in the tips under the California tip allocation law, which states that an agent cannot take a tip “paid, given to, or left for” another employee.

After a bench trial, the lower court agreed [PDF] and awarded the class $86 million, plus interest, for a total of $105 million in restitution.

The state court of appeals overturned the verdict, finding that the parties’ focus on the question of “agent” or “non-agent” was misplaced. Instead, it found a close review of the language of the statute revealed that even “agents” could receive tips, as long as the tips were intended for that particular agent employee.

In the case of Starbucks’ tip jars, the shift supervisors would have been virtually indistinguishable from baristas so that customers would have intended for both to receive the compensation and would have understood they were tipping a “team,” the court reasoned. It found the facts presented in the case to be “narrow and specific.”

The decision was modified slightly on July 2, 2009. The plaintiffs have indicated their intent to seek review.

Despite the appellate court’s refusal to decide who fits into the definition of “agent,” it specifically noted that if store managers or assistant managers were allowed to share in proceeds from a collective tip box, “the facts would not be the same and would implicate issues not presented here.”

The appellate court also distinguished the tip-allocation issue from the more common tip-pooling cases, which typically involve a restaurant or company’s requirement that employees, such as waiters or waitresses, “pool” a certain percentage of their tips together to share with employees involved in the service of the customer (e.g., the hostess, busboy, and food runner).

Disputes can arise when servers are forced to share tips with employees with arguably supervisory or managerial responsibilities who also assist with the service of the customers (such as lead servers, maître ds, or assistant managers).

In those cases, such as Jameson v. Five Feet Restaurant(cases analyzing tip pooling statutes under other state laws, as well as cases analyzing federal law), courts have drawn a hard line, finding that tip pooling “is only permitted among employees who are neither employers nor “agents” under the applicable statute.

“Agents” are typically defined as employees who have authority to hire, fire, supervise, or control their coworkers. In addition to agency status, other aspects of a tip pool that may be challenged, depending on the applicable state law, include: whether participation in the tip pool is voluntary; whether the arrangement is fair and equitable,which generally turns on what percentage the servers must contribute; and whether non-service employees, such as kitchen staff, are recipients of the tip pool.

In contrast, the Starbucks court refused to draw a bright line.

While a verdict reversal of this magnitude has drawn lots of attention, the ultimate impact on tip pooling cases through the rest of the country or even in California is debatable.

“It certainly is a huge victory for employers in an area of law that can be very challenging for them, especially in a state like California,” says Ann Marie Painter, Dallas, cochair of the ABA Section of Litigation’s Employment and Labor Relations Law Committee.

Painter also thinks the decision is well-reasoned and will provide at least some guidance for the hospitality and restaurant industry as to who will be considered “agents” for purposes of both tip allocation and tip pooling cases.

But ultimately, Painter says, “the reality may be that the courts simply view it as a decision based on narrow facts, either specific to tip jar/ tip allocation facts, or due to the technical language of the California statute. In other words, the impact may be less than the hype.”

Even so, Painter notes, “we are hopefully seeing a trend away from courts allowing plaintiffs’ attorneys to focus on a technicality of the law to promote class certification.”

Conversely, other attorneys think the case, which is one of the first to allow any type of supervisors to share in tips, is nonsensical and will be reversed by the California Supreme Court.

“It makes no sense to carve out a new standard for tip allocation cases that does not take into consideration the agency status of the individual receiving tips,” says Alan G. Crone, Memphis, cochair of the Section’s Class Action and Derivative Suits Committee’s Employment Law Subcommittee.

“Taken to its logical conclusion, this case means that as long as the patron is informed the tips could be shared by everyone at the store or restaurant, the monies could be allocated to store managers as well as the rest of employees,” Crone says. “This clearly cuts against the intent of the tip allocation and tip pooling statutes.”

While reasonable minds may differ as to whether the Starbucks case is a benchmark or anomaly, all sides can likely agree that the issues raised in the case are far from resolved.

Keywords: Chau v. Starbucks Corp., tip allocation, tip pooling, California Law, California Labor Code, employment and labor law

Related Resources

  • September 30, 2009 – The final chapter on tip pooling is not yet finished. This issue will not be resolved until it is realized that tips are the customer's private property and that employers, along with judges, have no business deciding how the customer's tip should be appropriated.

    The truth of the matter is, no one, other than the customer, should be deciding who his tip is intended for or who can share in his tip. Businesses who collect tips through tip pools and tip jars are preventing customer's from determining both who their tip is intended for and how much that worker is entitled to.

    Eventually it will be realized that both employer required tip pools and communal tip jars are an illegal appropriation of private property, the customer's tip.

    In order for our laws to protect the tip incomes of American workers, we must insure that customer's retain their right to determine who is entitled to their tip and how much the worker is entitled to.

    When customers are stripped of their right to determine who the recipient of their tip should be, those workers who receive tips are stripped of the protection our labor laws are supposed to provide them.

    When customers are stripped of their right to determine how much in tips an employee is entitled to, those workers who customarily and regularly receive tips have no way to protect what customer's intended to tip them.

    Tip pooling will eventually be viewed as a right exclusively reserved for an employee who has received a tip directly from a customer. Only an employee who has been presented a tip would be authorized to appropriate or share it with other workers.

    Eventually it will be realized that the only condition which must be satisfied in determining whether a tip pool is legal is whether or not the recipient of the customer's tip has wilingly and voluntarily decided to share the customer's tip with other workers.

    The truth of the matter is, only an employee who is given a tip is authorized to appropriate the customer's private property to other workers. Business owners who attempt to pool the customer's tip have no authority to do so. Judges who rule that employers may pool or appropriate the customer's tip will eventually realize that even they have no jurisdiction over the customer's private property.

    In the meantime, businesses across this country will continue to benefit themselves to the tips customer's are bestowing on their employees. Tips are currently being used to subsidize the payroll expenses of thousands of businesses across this country.

    If Americans knew how much of their tip was actually going into the business owner's pocket this chapter would have a proper ending..


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