On June 2, 2009, the Fourth Appellate District, Division One, issued an opinion in the class action case of Jou Chau v. Starbucks Corporation, reversing the trial court’s award of over $86 million to a previously certified class of Starbucks “baristas” who had challenged Starbucks’ tip policy on the ground that certain service employees, known as “shift supervisors,” had improperly shared in the customer tips left in a collective tip box.

The facts and legal arguments at the bench trial were fairly straightforward. Starbucks allowed shift supervisors who primarily engaged in barista-type customer service duties to share tips left by customers in a collective tip box. A former barista, Jou Chau, brought a putative class action against Starbucks, claiming that the tip-sharing policy violated California Labor Code section 351. That Section states, in relevant part:

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, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for. . . .

There was no dispute between the parties that tips left in the collective tip box were for the “team” of employees who provide service to the customer. The parties agreed that the “team” included baristas and shift supervisors. The plaintiff argued that shift supervisors were “agents” of Starbucks, and thus, could not share tips with the baristas as a matter of law under California Labor Code § 351. Starbucks argued that shift supervisors were not “agents,” but even if they were “agents”, California Labor Code § 351 does not prohibit shift supervisors from sharing in tips since they primarily performed the same customer service duties as baristas. The trial court had agreed with the plaintiff’s argument that the shift supervisors were “agents” under California Labor. Code § 351 who could not share in customer tips, as the shift supervisors had the authority to supervise and direct the action of other employees.

In reversing the trial court’s large damages award, the court of appeal reasoned that there are actually two rules within California Labor Code § 351. First, the “employer or agent” cannot take tips left for or given to a specific employee. This prohibition appears in the first portion of the first sentence of § 351: “No employer or agent shall collect, take, or receive any gratuity. . .paid, given to, or left for an employee. . . .” Second, the “employer” must permit an employee, irrespective of “agent” status, to keep a tip that is left for that specific employee. This appears in the second sentence of § 351: “Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for. . . .” Under this sentence, the court of appeal reasoned that an employer must allow an employee to keep the tip without regard to the employee’s status, as it was “paid, given, or left for” that employee. Applying this interpretation of California Labor Code § 351, the court of appeal held that since shift supervisors were part of the “team” of employees who provided service to the customers (along with baristas), they could share in tips that customers left for the customer service team in the collective tip box. In the court of appeal’s words, “the employer is merely ensuring that the collective tip box is equitably divided so that each service employee receives the amount he or she is due.”

The court of appeal then attempted to reconcile its reasoning with other “tips cases,” including Leighton v. Old Heidelberg, Ltd., 219 Cal. App. 3d 1062 (1990), Jameson v. Five Feet Restaurant, Inc., 107 Cal. App. 4th 138 (2003), and Budrow v. Dave & Buster’s of Cal., Inc., 171 Cal. App. 4th 875 (2009).  (Note our earlier blog postings on this subject). For example, the court of appeal distinguished “mandatory tip pooling” policies from Starbucks’s “tip apportionment” policy. The appellate court reasoned that mandatory tip pooling policies require employees who have been given specific tips to pool the tips for the collective benefit of all employees. Such tips cannot be shared with “agents” of the employer, as this would violate the first sentence of California Labor Code § 351. However, with “tip apportionment” policies, it is clear that a customer is leaving tips for all employees, such as in a collective tip box. In this case, an employer can permit shift supervisors who are “agents” to participate in tips since they are not taking these tips away from specific employees for whom the tips were left. The court of appeal drew a sharp distinction between (1) an equitable allocation of collective tips to all service employees, which is lawful, and (2) an employer’s right to require a service employee to share a tip paid to or received by that employee, which is unlawful.

This blog posting was authored by Matthew Marca and Tyler Paetkau.