Are you in the restaurant, hospitality, or other service industry
in which employees receive tips from customers? If so, an important new verdict
underscores the need to make sure your policies don’t allow management to dip
into the tip jar. A
that Starbucks Corp. must pay its
baristas more than $100 million for running afoul of a state law that prohibits
employers from having supervisors share in employee tips. Here we discuss the
case and provide tips to steer clear of a costly lawsuit.
Was Tip-Sharing Policy Valid?
The lawsuit was filed as a class action by Jou Chou, a former barista
at a Starbucks shop in
that a Starbucks policy of including shift supervisors in the sharing of tip
pools violated Labor Code Section 351, which provides that a gratuity is the
sole property of the employee or employees to whom it was paid, given, or left
for. The law prohibits employers or their agents—including managers and supervisors—from
collecting, taking, or receiving any gratuity that a customer leaves for an
employee.
The challenged Starbucks policy required that tips left by
customers be pooled and then distributed among baristas and shift supervisors
based on how many hours each employee worked. Starbucks baristas operate the
cash register, make coffee, and serve customers. Shift supervisors perform
those same duties but also have certain managerial tasks, including directing
other employees and setting schedules. Starbucks argued that its shift
supervisors didn’t qualify as agents or managers because they mainly spent
their time serving customers.
Baristas Win Big Money
A superior court judge, however, disagreed with the coffee chain.
In a brief, four-paragraph ruling, the court, concluding that Starbucks
violated
law, ordered the company to pay $86.7 million—plus interest—for a total
judgment exceeding $100 million. About 120,000 current and former baristas will
share in the proceeds. Starbucks has announced that it will appeal.
Tips on Tips
This case will likely trigger similar lawsuits in the restaurant
industry and other industries in which tipping is common practice. In fact, a
few days after the verdict was announced, Starbucks was slapped with a similar
lawsuit in
If you have a tip-sharing arrangement in place or are considering
adopting one, make sure your program complies with these California Division of
Labor Standards Enforcement (DLSE) requirements:
• Participants in the tip pool must be only employees who
contribute in the “chain of the service” bargained for by the patron, as is
industry custom, such as (in a restaurant) a busboy, bartender, wine steward, or
host who isn’t a manager.
• The employer or agent/supervisor can’t share in the tips, even
if the employer or agent/supervisor provides direct service to a patron.
• There must be some fair and reasonable relationship between the
distribution of the pooled tips and the degree of service provided by a
particular employee or category of employee.
The line between a mandatory policy and a voluntary one may be fuzzy—even a small amount of employer involvement, perhaps just suggesting that employees share tips, could mean the arrangement is mandatory in the DLSE’s eyes
Keep in mind that these rules apply only when the employer
mandates tip sharing. But the line between a mandatory policy and a voluntary
one may be fuzzy— even a small amount of employer involvement, perhaps just suggesting that employees share tips, could mean the arrangement is mandatory
in the DLSE’s eyes. Note, too, that a tip-sharing arrangement may be covered by
the rules even if it isn’t in writing.
Finally, here are two other important tip rules to keep in mind:
1. Tip credits. A
federal wage and hour rule permits an employer to pay less than minimum wage to
a tipped employee by including the tips the employee receives in the
calculation of the employee’s wage. However,
practice.
2. Credit card tips. If
a customer tips by credit card, California Labor Code Section 350 requires that
you pay the employee the full gratuity indicated on the charge slip no later
than the next regular payday after the customer authorized the credit card
payment. You can’t deduct from the employee’s tip any processing fees you may
have to pay to your bank or to the credit card issuer.