A San Diego judge has ordered Starbucks Corp. to pay its California coffee baristas a caffeine-jolting $100 million in back tips and interest, after finding that the coffee chain violated California wage and hour law by allowing shift supervisors to share in employee tips.
The lawsuit was filed as a class action in 2004 by Jou Chou, who had worked as a Starbucks “barista” (counter person) at a La Jolla shop. Chou contended that Starbucks, by having a tip-pooling arrangement that permitted shift supervisors to share in tips left by customers, violated California law. Although tip-pooling programs are legal in California, Labor Code Section 351 prohibits employers—including their agents (managers and supervisors—from taking any share of the pooled tips.
Starbucks argued that its shift supervisors are not part of store management and therefore could legally participate in the tip pool. But the court disagreed, ordering Starbucks to pay back tips and interest to about 120,000 current and former baristas. Calling the court’s ruling “fundamentally unfair and beyond all common sense and reason,” Starbucks says it will appeal.
Employers that have tip-pooling programs or are considering them should ensure that the arrangements meet three guidelines, set out by the California Division of Labor Standards Enforcement (DLSE). In particular, the DLSE says that the following three requirements must be met for a tip-pooling arrangement to be valid:
- Participants in the tip pool must be only those employees who contribute “in the chain of service” bargained for by the patron, as is industry custom.
- The employer or agent/supervisor cannot share in the tip pool, even if the employer or agent/supervisor provides direct service to a patron.
- The tip-sharing policy must be fair and reasonable.
Employers should put their tip-sharing policy in writing so all employees are aware of the arrangement.
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