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Brian R. Tinkham: A venti-sized decision for hospitality industry

It's the Law

Posted: August 27, 2009 9:51 p.m.
Updated: August 28, 2009 4:30 a.m.
Hospitality industry employers recently received a double shot when an appellate court reversed a trial court decision that awarded Starbucks’ employees over $100 million in restitution and interest due to a tip-allocation policy.  Who would have thought that a small tip jar in your local restaurant/coffee shop would cause such a large fine and headaches for employers?

However, after nearly a decade of questions regarding tip-pooling policies in California, the Chau v. Starbucks Corporation case has finally given some guidance on this important wage and hour issue (provided the California Supreme Court does not overrule it).

Jou Chau, a former Starbucks “barista,” brought a class action against Starbucks Corporation challenging a policy permitting shift supervisors to share in tips in a collective tip box.

Chau alleged these shift supervisors were not permitted to share the baristas tips because they were “agents” of the company.  

The trial court found that Starbucks shift supervisors were, in fact, “agents” because they had the authority to supervise and direct the acts of employees.

The evidence showed the shift supervisors had authority to “run a shift,” and were in charge when a store manager or assistant manager is not present in the store.  Shift supervisors were are also accountable for ensuring that baristas complete their tasks, directing them to perform specific tasks, sending baristas home early, and were responsible for reporting misconduct.

At the appellate level, Starbucks was able to show that each customer was served by a team, rather than a single employee.  The team consisted of one or more baristas and shift supervisors, who each rotated job duties throughout the day.

In particular, Starbucks showed that shift supervisors spent approximately 90 percent to 95 percent of their time performing the same service tasks as baristas during any given work shift.  Based on this approach, Starbucks contended that the shift managers and the baristas were eligible for all tips left in the tip jar for the entire week based on the number of hours worked by each employee.

The court found that the legislative intent of the underlying California law, Labor Code § 351, sought to prevent the public from being deceived when leaving a tip for the employees and not the employer.   To that extent, Starbucks tip-pooling policy worked. 

When a customer leaves a tip in the collective tip box, the customer necessarily understands that the tip is not intended for a particular person but that the tip will be divided amongst the team.  Thus, the court reasoned, it would be inconsistent with the statute to require an employer to disregard a customer’s intent and instead compel the employer to redirect the tips to only some of the service personnel.

Due to the size of the trial court’s decision and the popularity of wage and hour class actions regarding tip policy issues, this decision will likely be appealed to the California Supreme Court.  In particular, the issue of whether shift supervisors are agents/managers may be an issue that the class will ask the High Court to clarify.  However, hospitality industry employers should take away a few points from this decision.

First, an employee handbook that clearly describes each employee’s roles and the tip-pooling policy is now a necessity in the industry.

Second, the tips pooled should be spread out, on a pro-rata basis, amongst the employees for whom the customer intended the tips.  However, the tip-pooling policy must not prohibit an employee from accepting a tip when the customer wanted to tip that employee individually.  Consult your labor and employment attorney regarding any further changes or developments in this field of law.    

Brian R. Tinkham is an attorney with Poole & Shaffery, LLP, a full service business, corporate and employment law firm.  He can be reached at (661) 290-2991.  His column represents his own views and not necessarily those of The Signal.  “It’s The Law” appears Fridays and rotates between members of the Santa Clarita Valley Bar Association.  Nothing contained herein shall be or is intended to be construed as providing legal advice.


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