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Employment Law Blog

Monday, June 08, 2009

California Appellate Court Adds New Dimension To Tip Pooling Rules

In a case titled Chau v. Starbucks, a California appellate court has added a new dimension to rules regarding tip pooling in California.

Tip pooling is the practice of sharing customer tips among staff. It is a common practice in restaurants. California’s Labor Code has a specific rule that precludes managers or supervisors from taking part in the tip pool distribution.

General Rules For Tip Sharing

Labor Code Section 351 states: “No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron . . . . Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.”

Courts and the California Division of Labor Standards Enforcement (DLSE) have interpreted Section 351 to permit tip pooling. However, owners, managers and supervisors may not share in the pool.

Moreover, according to the DLSE, in the context of table service, only employees providing direct table service may share. Such employees could conceivably include waiters and waitresses, busboys, bartenders, host/hostesses and maitre d’s. Employees who do not provide direct table service and who do not share in the tip pool include dishwashers, cooks, and chefs, except in restaurants where the chefs prepare the food at the patron’s table, in which case the chef may participate in the tip pool. But this interpretation has been recently abrogated by an appellate court case titled Budrow v. Dave & Buster’s California. In that case, the court ruled that the “direct table service” rule was not California law, and that it was proper for bartenders to share in the tip pool.

The Budrow court wrote: “Ultimately, the decision about which employees are to participate in the tip pool must be based on a reasonable assessment of the patrons’ intentions. It is, in the final analysis, the patron who decides to whom the tip is to be ‘paid, given to or left for.’ It is those intentions that must be anticipated in deciding which employees are to participate in the tip pool.” Unfortunately for employers, this is not a bright-line rule.

Section 351 also prohibits employers from requiring wage deductions based on received tips and protects an employee’s rights to tips paid on credit cards.

Through these provisions, the Legislature sought to “prevent fraud upon the public”, and “ensure that employees, not employers, receive the full benefit of gratuities
that patrons intend for the sole benefit of those employees who serve them.”

What About The Tip Jar?

The rule seems clear enough in the context of table service at a restaurant. But what about the collective tip jar often seen near the cash register at Starbucks? Can shift supervisors participate in the tip pool distribution, or does such a practice violate the Labor Code?

In the Chau v. Starbucks case, the question was of great monetary significance. At trial in this class action, the employees prevailed. The court determined that shift supervisors improperly shared in the tip pool. The trial court awarded an estimated $105 million in damages. (See a summary of the case here: Starbucks Tip Case.)

On appeal, the court reversed this award. The appellate court determined that the Labor Code prohibition did not apply to Starbuck’s collective tip jars.

The court reasoned that tips left in the jars were meant for all Starbucks employees who provide the service. The trial record reflected that the shift supervisors spent 95% of their time performing the same tasks as the other workers, and did not have the power to hire, promote or terminate. Moreover, the tip pool was divided weekly among store employees proportionate to the number of hours worked. Also, while shift supervisors shared in the pool, store managers and assistant managers did not.

The court of appeal wrote:

Because—as plaintiffs concede—section 351 does not prohibit a shift supervisor from keeping gratuities given to him or her for his or her customer services, there is no logical basis for concluding that section 351 prohibits an employer from allowing the shift supervisor to retain his or her portion of a collective tip that was intended for the entire team of service employees, including the shift supervisor. In this situation, the shift supervisor keeps only his or her earned portion of the gratuity and does not “take” any portion of the tip intended for services by the barista or baristas. If—as is undisputed here—the tips were left in the collective tip boxes for the baristas and shift supervisors, and it was permissible for Starbucks to require an equitable division of the tips according to the number of hours worked by each employee, it is not a violation of section 351 for the employer to maintain a policy ensuring those service employees benefit from a portion of those tips. Because a shift supervisor performs virtually the same service work as a barista and the employees work as a “team,” Starbucks did not violate section 351 by requiring an equitable distribution of tips specifically left in a collective tip box for all of these employees.

Employers should not simply assume that supervisors can share in the division of tip jars. This decision was fact-dependent. However, where the facts are analogous to the Starbucks case, shift leads or supervisors may properly share in the tip pool. But before implementing a new policy, monitor this case. There have been a number of California appellate cases on the topic of tips, and the issue may be headed for the California Supreme Court.

For more information on tips, see this FAQ.

Submitted by:
Christopher W. Olmsted
Barker Olmsted & Barnier, APLC

Posted by Christopher W. Olmsted on 06/08 at 10:18 PM
Employment Law
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