Jun. 2 2009

California Court of Appeal Overturns Starbucks Tip Pooling Verdict

Topics: Court Decisions, Wage & Hour Issues

Earlier today, a California Court of Appeal overturned a recent trial court verdict awarding a class of current and former Starbucks baristas $86 million in tips they were required to share with shift supervisors. The Court of Appeal held in Chau v. Starbucks that the trial court erred in ruling that Starbucks' tip allocation policy violated California law. More specifically, the court explained:

"The applicable statutes do not prohibit Starbucks from permitting shift supervisors to share in the proceeds placed in collective tip boxes. The court's ruling was improperly based on a line of decisions that concerns an employer's authority to mandate that a tip given to an individual service employee must be shared with other employees. The policy challenged here presents the flip side of this mandatory tip-pooling practice. It concerns an employer's authority to require equitable allocation of tips placed in a collective tip box for those employees providing service to the customer. There is no decisional or statutory authority prohibiting an employer from allowing a service employee to keep a portion of the collective tip, in proportion to the amount of hours worked, merely because the employee also has limited supervisory duties."

The Court of Appeal further explained that it did not matter whether or not the shift supervisors qualified as "agents" of Starbucks under California Labor Code section 350. "Even if shift supervisors can be considered 'agents' within the meaning of section 350, subdivision (d), Starbucks did not violate section 351 by permitting shift supervisors to share in the tip proceeds that were left in a collective tip box for baristas and shift supervisors." According to the court, the evidence established that shift supervisors spent the majority of their time performing the same service tasks as the baristas, and that customers would not be capable of distinguishing between an employee who was a barista and one who was a shift supervisor. "Thus, customers who place money in the tip box understand and intend that the money will be shared by the entire team, including baristas and shift supervisors."

Based on this reasoning, the Court of Appeal reversed the trial court judgment against Starbucks and ordered the trial court to enter judgment in Starbucks' favor. This is a very positive decision for California businesses that have tip allocation policies based on the use of collective tip jars similar to those used by Starbucks. However, businesses with mandatory tip pooling policies involving customers who leave personal tips for a specific employee (as is often the case in restaurants with direct table service) must continue to be mindful of the general restriction against permitting "agents" of the employer to share in pooled tips.

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About the Editor

Robin Largent represents employers, including major food and retail companies, in all types of employment litigation: wrongful termination, retaliation, breach of contract, wage and hour (California Labor Code) and unfair competition. She also regularly counsels and advises California employers on issues of compliance with California and federal employment laws.
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