California Labor & Employment Law Blog

By Nancy Berner

As has been widely reported in the news, Starbucks’ baristas have scored an apparent victory in California, as a San Diego Superior Court judge recently determined the company violated Business and Professions Code section 17200 (Unfair Competition Law) when it allowed shift supervisors to share the proceeds of the tip jar with the baristas.  (Chou v. Starbucks, GIC 836925.)  Originally pled as a violation of both the Unfair Competition Law and the California Labor Code, the class action plaintiffs made the strategic decision to dismiss their legal Labor Code claims and proceed to trial (without a jury) solely on their equitable unfair competition claim (and its four-year statute of limitations).  Plaintiffs successfully argued that 120,000 California-based baristas are owed restitution in the amount of $86 million dollars plus interest, for a final sum exceeding $100 million.  Plaintiffs will also seek to recover attorneys’ fees.  Starbucks has reported that it intends to “vigorously” appeal the decision, but in the meantime, restaurateurs are well advised to review their own tip pooling policies.

Tip pooling arrangements are not per se illegal.  Indeed, according to California’s Department of Labor Standards Enforcement (DLSE), restaurants can implement mandatory tip pooling policies requiring tips to be shared with employees who provide direct table service, provided that the pooling arrangement is fair and equitable.  Tip pooling policies whereby the servers receive 80% of the tips and the remaining 20% is shared with other direct table service employees, have been found fair and equitable.  The tips may not be shared with employees, such as cooks and dishwashers, who do not provide direct table service. 

The Starbucks case highlights another important limitation on tip pooling policies.  The California Labor Code prohibits employers “or their agents” from sharing in the tips left for employees.  Therefore, owners, managers or supervisors may not share in the tips, even if they share in the table waiting duties.  It is important to note that the DLSE takes a broad view of the range of employees who qualify as “supervisors.”  According to the DLSE, a supervisor is anyone “with the authority to hire or discharge any employee or supervise, direct, or control the acts of employees."  (September 8, 2005 Op. Letter of Donna M. Dell.)  

Tip pooling lawsuits appear to be the flavor of the month.  In fact, in the wake of the recent San Diego Superior Court ruling, Starbucks was hit with similar class action lawsuits in Massachusetts and Minnesota.  All employers who utilize tip pooling should review their policies to ensure compliance with the law.  For further guidance on the legal requirements for tip pooling policies, please see our previous post on this subject.