Jun 09, 2009

Starbucks Wins Appeal of Tip Pooling Case

It's all about the box -- the "standard 4"x 4" plexi cube" that each Starbucks store is required to use as a container for tips, that is. Last week, a California Court of Appeal overturned a huge class action award to Starbucks baristas, finding that it was perfectly legal to divide tips from the box among the baristas and shift supervisors who worked each shift. The shift supervisors were the cause of the dispute. Attorneys for the baristas argued that they shouldn't be allowed in the tip pool because, as supervisors, they were agents of the employer, and such agents can't share tips under California law. (Section 351 of the California Labor Code provides that "no employer or agent shall... receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron....")

The trial was largely about whether the shift supervisors are agents -- that is, whether they really had enough managerial authority to elevate them out of the ranks of the baristas and make them representatives of the employer. But the Court of Appeal didn't spend any time on this issue -- it didn't even decide whether or not the shift supervisors really are agents. Instead, it focused on the "left for an employee" part of the statute, finding essentially that the customer had already pooled the tips among all of the service employees by putting them in a communal tip box. Because the shift supervisors spent much of their time serving customers, and customers knew that their tips would be divided among the employees providing service, it was appropriate to divvy the tips, even if the supervisors were agents.

The more I think about this decision, the odder it seems, for several reasons:

  • The court emphasized that employees are free to keep tips given directly to them by a customer -- it's just the tips in the box that get divided. In other words, this case isn't about tip pooling, because the tip was left for a group of employees in the first place. In my decades of patronizing my coffee chain of choice, I've never seen a customer tip an employee directly. This isn't how tips work for counter service, yet the court's decision is based on this distinction between a type of tips that exists and one that largely doesn't. 
  • The court focused on customer expectations. But that approach makes the statute meaningless in this context. Shift supervisors are only the lowest level of managers at Starbucks, which also has assistant managers and store managers who spend a lot of time serving customers, too. They aren't allowed to share tips per Starbucks policy, but under the court's reasoning, they should. All the customer sees is someone serving coffee and pastries. If the customer's understanding is all that matters, CEO Howard Schultz should get his fair share of the tip box if he spends an hour pulling espresso shots.
  • Customer expectations haven't won the day in other types of tip pooling cases. For example, California courts have repeatedly held that it's legal to require restaurant wait staff to pool tips with bussers, dishwashers, cooks, and other employees who contribute to the service of the diner, as long as no employers or agents are allowed in the pool. Although diners may not object to tips being divided in this way, I don't think that's what most expect when leaving a tip.
  • The "agent" argument is the key to the other cases the court cites. For example, the court discusses a casino case in which dealers had to share tips with other employees including shift and floor managers. That case found that it was legal to require tip pooling with employees as long as they weren't agents. Based on job duties, the court in that case found that the floor managers were not agents -- and so could share in the tips -- but the shift managers were agents and therefore not entitled to tips. The court could have analyzed the Starbucks case in just this way, but chose not to.

All of this isn't to say that the baristas have a slam-dunk case. It sounds like the shift supervisors spent most of their time serving customers too, and really didn't receive much more compensation for doing it. Their actual job duties will reveal whether they have "the authority to hire or dicharge any employee or supervise, direct, or control the acts of employees," the definition of an agent. But I think this -- whether or not the shift supervisors are agents -- is the crux of the case, not whether the tips go into the box or the hand.

If you receive tips as part of your compensation, you can learn more about your legal rights by reading Nolo's article Tips, Tip Pooling, and Tip Credits: What Service Employees Need to Know.