Starbucks Tip-Pooling Policy Survives Scrutiny

     ALBANY, N.Y. (CN) – Starbucks can pool tips and split them among baristas and shift supervisors, New York’s highest court ruled.
     The company, with hundreds of coffeehouses in New York and thousands worldwide, collects customer tips in jars near the registers and distributes the money weekly to baristas and shift supervisors based on the number of hours each of them works.
     Assistant store managers and store managers are excluded from the tip-sharing pool.
     Two groups of New York-based Starbucks employees challenged the formal policy in 2008. In one putative class action, baristas claimed that shift supervisors should not share in the tips; another involved assistant store managers claiming that they should be part of the tip-sharing pool.
     A federal judge ruled for Starbucks in both cases, but the 2nd Circuit punted a question of New York law to the state’s highest court.
     The first asks what factors determine whether an employee is an “agent” of his employer, and thus ineligible for sharing in a tip pool under New York’s labor law.
     The Court of Appeals let the Starbucks policy stand Wednesday.
     “In sum, an employee whose personal service to patrons is a principal or regular part of his or her duties may participate in an employer-mandated tip allocation arrangement under Labor Law 196-d, even if that employee possesses limited supervisory responsibilities,” Judge Victoria Graffeo wrote, joined by four colleagues on the court. “But an employee granted meaningful authority or control over subordinates can no longer be considered similar to waiters and busboys within the meaning of Section 196-d and, consequently, is not eligible to participate in a tip pool.”
     Seattle-based Starbucks employs four categories of workers in each of its stores: baristas, shift supervisors, assistant store managers and store managers.
     Baristas are front-line workers who take and prepare orders, run the register, clean tables and stock product. Shift supervisors do many of the same tasks, but have some supervisory responsibilities, such as assigning baristas to particular stations. Both work on a part-time, hourly basis.
     Assistant store managers may also perform customer-oriented tasks, but function primarily as a store manager’s deputy, helping with personnel and payroll. Managers and assistant managers are full-time employees eligible for bonuses and benefits.
     New York Labor Law 196-d, which is applicable to the Starbucks appeals, “admittedly [is] not a model of clarity,” Graffeo wrote.
     The section dates to 1968, when the goal was to end the practice of employers skimming money intended as tips for workers. The statute says that “no employer or his agent or an officer or agent of any corporation, or any other person” can retain any part of the gratuity intended for a worker.
     As requested by the hospitality industry, the section also preserved tip-sharing practices among waiters, busboys and “similar” employees.
     In their class action, the baristas used the “agent” language to argue that any employee with supervisory responsibility – no matter how limited – was barred from the tip pool. That excluded shift supervisors, they said.
     The assistant managers argued the opposite in their class action: that only employees with full managerial authority – like hiring and firing – were “agents” barred from tips. That made them eligible, they said.
     Graffeo noted that the court took some guidance from the state Department of Labor, which offered an amicus curiae brief.
     In 2011, the agency promulgated the so-called Hospitality Industry Wage Order, which “clarified and unified” tip-splitting policies previously found in a patchwork of opinions and written guidelines, according to the ruling.
     The order “makes clear” that participation in a tip pool should be based on a worker’s duties, not title, the court found.
     “It is therefore evident that employer-mandated tip splitting should be limited to employees who, like waiters and busboys, are ordinarily engaged in personal customer service, a rule that comports with the ‘expectation[s] of the reasonable customer,'” Graffeo wrote, quoting precedent.
     “Consequently, we cannot agree with [the baristas’] contention that even the slightest degree of supervisory responsibility automatically disqualifies an employee from sharing in tips under Labor Law 196-d.”
     Though the assistant store managers argued that they are “similar” to waiters and busboys, Graffeo said “there comes a point” at which managerial duties make a worker less involved in directly serving customers.
     “We conclude that the line should be drawn at meaningful or significant authority or control over subordinates,” she said, offering examples such as helping in performance evaluations or creating work schedules.
     Power to hire and fire is not the exclusive test, according to the ruling.
     “Meaningful authority, not final authority, should be the standard,” Graffeo wrote.
     The 2nd Circuit had also sought clarification of whether state labor law allows employers to exclude from the pool employees who otherwise would be tip-eligible.
     Graffeo noted that the lower court “effectively answered the second question in the affirmative, holding that Labor Law 196-d excludes certain people from an employer-mandated tip pool but does not require the inclusion of all employees not statutorily barred from participation.”
     “It is clear that Starbucks’ decision to exclude assistant store managers from the tip pool is not contrary to Labor Law 196-d,” Graffeo wrote.
     Judges Robert Smith and Jenny Rivera partly dissented in separate opinions.
     Smith found Labor Law 196-d inapplicable to the Starbucks appeals because the statute dealt with a boss or fellow employee demanding part of a worker’s tips.
     “No one is doing that in this case,” Smith wrote. “The only issue is how the pool is to be shared among the people who earn the tips – a subject on which the statute has nothing to say.”
     Rivera said she agreed with the majority’s conclusion on the first certified questions, but “I would decline to answer the second certified question.”
     “Put otherwise,” she said, “the majority’s suggestion that assistant store managers are employer’s agents ineligible to participate in a tip pool renders unnecessary its further consideration of the second certified question.”
     Shannon Liss-Riordan of Lichten & Liss-Riordan in Boston argued for Jeana Barenboim, the lead plaintiff for the baristas. Adam Klein of Outten & Golden in New York represented Eugene Winans, the lead plaintiff for the assistant store managers. Rex Heinke of Akin Gump Strauss Hauer & Feld in Los Angeles represented Starbucks Corp.
     Amicus curiae briefs also were submitted by the New York State Restaurant Association Inc., Unite Here Local 100, Align: Alliance for a Greater New York and the New York City Hospitality Alliance.

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