NY Court Asked to Look at Starbucks Tip Pooling

MANHATTAN (CN) - The 2nd Circuit has called for clarification on New York labor law so that it can evaluate tip distribution among Starbucks baristas.

A federal judge had ruled for Starbucks in two class actions filed against the coffee giant in 2008.

The first case, led by two Starbucks baristas, contends that store policy wrongfully lets shift supervisors dip into the tip pool. Under New York law, "shift supervisors are Starbucks 'agent[s]' who may not 'demand or accept, directly or indirectly, any part of the gratuities, received by an employee,'" according to their complaint.

The second suit, brought by a cadre of assistant store managers, argues that assistant managers do not have sufficient managerial power as defined by the same law to preclude them from partaking in the pool, though Starbucks currently dictates that they receive none of the funds.

Starbucks baristas and shift supervisors are both hourly wage employees, and while shift supervisors do have some authority, including the ability to open and close the store and remove cash from the register, their primary duty is to assist customers. Assistant store managers serve customers as well, but also assist in high-level decisions such as hiring and firing. If they work more than 37 hours a week, they are also salaried.

A three-judge panel is now looking at these cases on appeal, but current case law leaves several key legal issues undefined.

New York Labor law "bars employers from requiring tipped employees to share tips with employees who do not perform direct customer service" and "employees who are managers or 'agent[s]' of the employer," according to the 28-page opinion.

Finding that the exact definition of an employer "agent" is unclear, the 2nd Circuit asked the New York Court of Appeals to clarify state law and how it relates to different requirements under federal law.

"Under New York law, an employer may not retain any part of a compulsory charge that it purports to collect to compensate its employees, while under federal law, the same employer may retain portions of that charge and still claim a tip credit," Judge Reena Raggi wrote for a three-member panel.

The judges also seek clarification as to whether the Hospitality Wage Order, passed in 2011 while the appeals in question were pending, applies retroactively.

The new order states "only food service workers may receive distributions from the tip pool," and it stipulates that "eligibility to participate in a tip pool 'shall be based upon duties and not titles,'" according to the 2nd Circuit. It also says that "no New York court has yet construed these regulations or explained how they interact, nor can we confidently predict how the New York Court of Appeals would apply them in the context of this case."

A ruling in favor of the baristas will moot the case of the assistant managers since they have more authority than shift supervisors, according to the opinion.

The federal judges also want clarification on whether an employer can exclude a legally eligible employee, such as the Starbaucks' assistant mangers, from the tip pool.

New York law "defines who is eligible to participate in tip pools," but "does not clearly state whether an employer may exclude an otherwise eligible tip-earning employee from any share of the business's tip pool," the 2nd Circuit's ruling says.

Clarification from the New York Court of Appeals "will shape the basic rules of how the hospitality industry, which is plainly vital to New York's economy, must pay its employees," the decision continues.

"As a matter of comity, we deem it appropriate to certify these questions to the New York Court of Appeals," Raggi wrote.

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