On November 9, 2012, the First Circuit affirmed the District of Massachusetts’ decision that Starbucks’ tip-pooling policy violated the Massachusetts Tips Act and affirmed an award of over $14 million in damages. Matamoros v. Starbucks Corp., Nos. 12-1189, 12-1277, ___ F.3d ___, 2012 WL 5458443 (1st Cir. Nov. 9, 2012).
In Matamoros, Starbucks baristas challenged the division of tips deposited by customers into tip jars. The court explained that four categories of employees staff Starbucks stores: store managers, assistant managers, shift supervisors and baristas. Id. at *1. Starbucks divided tips deposited each week to baristas and shift supervisors in proportion to the number of hours each employee worked per week. Id. The district court granted summary judgment to the employees, reasoning that the inclusion of shift supervisors among the persons eligible to profit from the tip pools violated the Massachusetts Tips Act. Id. at *2.
The Massachusetts Tips Act prohibits employers from requiring or permitting any “wait staff employee” to participate in a tip pool with any person who is not a “wait staff employee.” Mass. Gen. Laws ch. 149, § 152A(c). Under the Act, a “[w]ait staff employee” is a person who “(1) serves beverages or prepared food directly to patrons . . . ; (2) works in a restaurant, banquet facility, or other place where prepared food or beverages are served; and (3) who has no managerial responsibility.” Id. § 152A(a) (emphasis added).
At issue before the First Circuit was whether Starbucks’ shift supervisors had “no managerial responsibility.” Matamoros, 2012 WL 5458443 at *3. Starbucks argued that shift supervisors spent up to 90% of their time performing functions that baristas also performed, and lacked actual authority to hire, fire, discipline or promote baristas. The court rejected this argument, explaining that “the unvarnished text of the statute cuts sharply in favor of a bright-line rule. . . . ‘No’ means ‘no,’ and we interpret that easily understood word in its ordinary sense: ‘not any.’” Id. at *3. The court reasoned that the legislative history supported the same conclusion, because, under an earlier version of the Tips Act, courts evaluated whether an employee’s primary duty was to serve customers when determining whether the employee could participate in a tip pool, but the legislature amended the Tips Act to draw a line between employees with some managerial responsibility and employees with no such responsibility. Id. at *4. The court also considered an advisory opinion from the Massachusetts Attorney General which stated that workers with limited managerial responsibility, such as shift supervisors, do not qualify as “wait staff employees.” Id. at *5. The First Circuit concluded that the plain language of the statute, legislative history and interpretive guidance all indicated that shift supervisors did not qualify as “wait staff” and thus could not participate in the tip pools. Id. at *7.
Currently, Starbucks policy is also being challenged in New York under that state’s law. On October 23, 2012, the Second Circuit certified to the New York Court of Appeals two questions under the New York Labor Law potentially dispositive to consolidated cases arising out of Starbucks’ tip-pooling policy. Barenboim v. Starbucks Corp., 698 F.3d 104 (2nd Cir. 2012). Like Matamoros, the issue in Barenboim is whether shift supervisors are permitted to participate in tip pools. A class of baristas contend that shift supervisors were “agents” of Starbucks who were ineligible to participate in tip pools under New York Labor Law. Id. at 106. In Winans v. Starbucks Corp., a class of assistant store managers claim that they were not agents of Starbucks and therefore they were wrongfully excluded from tip pools. Id. The United States District Court for the Southern District of New York granted summary judgment to Starbucks in both cases. Id.; see In re Starbucks Emp. Gratuity Litig., 264 F.R.D. 67, 72-73 (S.D.N.Y. 2009).
The Second Circuit determined that it was unclear under the language of the New York law “how many or what kind of supervisory responsibilities are dispositive to the § 196-d analysis,” and it was unclear whether “an employer may mandate a tip-pooling arrangement between a waiter and another customer-service employee of a higher rank.” Barenboim, 698 F.3d at 106. Also, it was unclear whether an employer may deny tip-pool distributions to an otherwise eligible tip-earning employee “even though customers paid gratuities into the pool in compensation for his service.” Id. Thus, the Second Circuit deferred decision on the appeals, awaiting guidance from the New York appellate court. Id. at 118.
Tip-pooling policies can provide ample grounds for litigation. As the Starbucks cases illustrate, employers should take particular care to evaluate their tip-pooling policies to ensure that tip policies comply with the Fair Labor Standards Act and applicable state statutes. In addition, employers should be aware that state law may govern which employees may participate in tip pools and/or whether employers may mandate tip pools.
Tracey Holmes Donesky and Christina Sans, Leonard Street and Deinard P.A.