In our May 2008 Employment Law Reporter, we advised you of the San Diego trial court decision in which a former Starbucks barista claimed that shift supervisors should not be allowed to share in the employees' tip pool. In that case, the trial court concluded that shift supervisors are considered the employer's "agents" for the purposes of sharing in tip pool revenues and were therefore not allowed to share in the tip pool. The trial judge ordered that the company pay $86.6 million in back tips plus interest (plaintiffs' estimate is that the interest would have been in excess of $19.1 million dollars).
Last week, the Court of Appeal reversed the trial court's decision and concluded that Labor Code §351 did not prohibit Starbucks from permitting shift supervisors to share in the proceeds placed in collective tip boxes. The court based its decision on the following key facts: (1) The vast majority of time shift supervisors and baristas performed the same job functions; (2) These employees rotate jobs and work as a "team" throughout the day; (3) Customers intend that the tips placed in the collective tip boxes collectively reward all of these servicing employees; and (4) Starbucks' manner of dividing the collective tip boxes among the service employees (based on the time worked by each employee) is fair and equitable. Under Starbucks' policies, if a customer chooses to give a tip to a specific employee rather than placing the tip in the tip box, the employee is not required to share the tip. Based on this fact, the Court of Appeal distinguished the Starbucks case from the earlier cases involving restaurant servers who were forced to share the tips that they received individually.
The trial had focused on the issue of whether shift supervisors are agents within the meaning of Labor Code §350(d). After determining that they were agents within the meaning of the code, it concluded that it would be unlawful to allow them to participate in the tip pool. The Court of Appeal reviewed the plaintiffs' evidence showing that shift supervisors had the authority to "run a shift" and were in charge of the store when a store manager or assistant manager was not present, were accountable for ensuring that baristas completed their tasks, had the authority to send employees home if business was slow and were responsible for reporting any misconduct by baristas. Starbucks, however, presented evidence showing that shift supervisors spent most of their work day (about 90 to 95 percent of their time) performing exactly the same jobs as baristas and shift supervisors had no authority to hire, discipline or terminate baristas. Based on this evidence, the Court of Appeal concluded that "...shift supervisors are not considered part of "management" and are viewed by baristas as more experienced employees who essentially perform the same job as baristas." Nevertheless, the court still held that they were considered "agents" of the employer as that term has been defined in §350 of the Labor Code.
Regardless, the Court of Appeal drew a distinction between a situation where an employer requires employees to contribute a portion of their personal tips to a tip pool and that where the proceeds of a collective tip box are divided up. The court reasoned that since Labor Code §351 does not prohibit an employee from keeping gratuities which were given directly to the employee merely because he or she is considered an "agent" of the employer, there is no logical basis for concluding that §351 prohibits an employer from allowing the shift supervisor who performs virtually the same service work and works as a team with the other baristas to retain his or her equitable portion of tips specifically left in a collective tip box for all of these employees.
Plaintiffs argued that if the court upheld Starbucks' policy, it would mean that any store manager could share in the tip proceeds even if the manager had the power to hire, fire and discipline employees. The Court of Appeal rejected this argument stating that Starbucks' policy absolutely prohibits store managers and assistant managers from receiving any tips from the tip boxes and "if Starbucks was to institute a policy permitting its store managers to share proceeds from a collective tip box, the facts would not be the same and would implicate issues not presented here; therefore, our legal reasoning and conclusions would not be controlling."
While this case has substantial implications to Starbucks, its reasoning should not extend beyond situations where employees are performing the same job functions with tips being placed in a collective tip box and distributed fairly and equitably. When considering your tip-pooling arrangement, employers should consider the following:
- No one should be allowed to participate in the tip-pooling arrangement who has the authority to hire, fire, discipline, assign work, schedule shifts, set wages or adjust employee grievances;
- The only individuals who should be allowed to participate in the arrangement should be those service employees who customarily and regularly receive tips pursuant to industry custom (these individuals do not include employees such as kitchen workers who do not have direct contact with guests);
- Make sure that tips are distributed to participating employees in a manner which is consistent with their contribution to the guests' service; and
- If you have any questions regarding the legality of the tip-pooling agreement, discuss them with your legal counsel.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
