June 18, 2009
 Compliance Matters
STARBUCKS ESCAPES $100M TIP POOLING RULING
 
 
Earlier this year, a San Diego trial court issued a $100 million verdict against Starbucks Corporation in a controversial class action involving how Starbucks distributes tip jar monies. About 10 days ago, a California Court of Appeal reversed that ruling. In doing so, the court clarified one of the important rules that hospitality industry employers must follow when devising any tip sharing arrangements.

Most Starbucks outlets have a tip jar by the cash register. Under Starbucks' tip pool arrangement, any monies in the tip jar  are shared by all of the service providers ("baristas"), including the shift supervisors. Shift supervisors are virtually indistinguishable from the other baristas, perform all of the same tasks as baristas, but have some minor supervisory duties such as supervising employees when no manager is present, opening and closing the store, and depositing store receipts in the safe.

A barista filed a class action suit challenging the practice of permitting shift supervisors to share in the tip jar monies. Under the California Labor Code, employers and their "agents" are prohibited from taking any portion of the tips left for employees. The barista contended that shift supervisors are "agents" of Starbucks because of their supervisory responsibilities.  As such, they are not allowed to be part of a tip poling arrangement.

In a disastrous ruling at the trial court, the judge said the barista was right and ordered Starbucks to pay some $100 Million (including interest) to the class members. This sum represented the portion of the tip jar monies paid out to the shift supervisors.

The Court of Appeal disagreed with the trial court's stance on the supervisors' participation in the tip pool. The Court of Appeal ruled that it was lawful for the company to allow the shift supervisors to have a share of the tip monies, even though they do perform some low level supervisory duties.

The Court of Appeal declined to rule on whether shift supervisors are actually Starbuck's "agents" as that term is used in the tip pooling statute. Nevertheless, the Court ruled that the Labor Code permits agents like these to share in tips in cases where the customer intended the tip to be shared with the agent.

Significantly, Starbucks shift supervisors work along side baristas as part of the service team.  From a customer perspective, they are just another barista.  Under that scenario, the Court of Appeal has no trouble finding that when the customer put money in the tip jar, the customer intended to reward everyone who provided the service.

While the Court's decision saved Starbucks a bundle, the case should not be read too broadly. There's a good chance the court would have reached a different decision if the shift supervisors were not part of the service team or the tips were not left in a collective tip jar. The ruling may not be helpful at all in a typical restaurant situation, where tips are left on the table and the supervisory employees may not play any direct role in the table service.

Given the stakes in the case, the plaintiff's lawyers have already announced their intention to file an appeal with the California Supreme Court.
 
Tip poling is a hot issue. The Supreme Court has already accepted review of another tip pool case, and several other cases are in queue seeking Supreme Court consideration.

Employers considering a mandatory a tip pooling policy are cautioned to consult with legal counsel to ensure compliance.
 
Your contact at the Firm is available to assist you with any questions or to review your company's policy.
 

For more information, call us today at (818) 508-3700,
or visit us on the web, at www.brgslaw.com.

Sincerely,

Richard S. Rosenberg
Partner
BRG&S, LLP

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