Monday, June 22, 2009

$86 Million Restitution Award for Starbucks Baristas Reversed

This posting was written by Jody Coultas, Editor of CCH State Unfair Trade Practices Law.

A California appellate court has reversed a $86 million-plus restitution judgment awarded in a California Unfair Competition Law (UCL) class action brought against Starbucks by current and former baristas for permitting shift supervisors to share money placed in collective tip boxes.

In 2004, a former Starbucks barista filed a class action, alleging that the company's practice of permitting supervisors to share tips violated a provision of the California Labor Code and, in turn, the UCL.

Baristas are entry-level, part-time hourly employees who work the cash register and make drinks, while shift supervisors are part-time, hourly employees who perform the same tasks as the baristas, as well as conducting basic supervisory tasks. The baristas and supervisors rotate jobs and work as a team throughout the day.

Collective Tip Allocation Policy

Starbucks mandates that “all baristas and shift supervisors who worked that week” share in the weekly collective tips. However, store managers and assistant managers are prohibited from receiving any portion of the tips.

Section 351 of the California Labor Code states that (1) no employer or agent shall collect, take, or receive any gratuity or part of a gratuity left for an employee by a patron and (2) a gratuity is the sole property of the employee or employees to whom it is given.

In this case, the trial court certified the class and—after a bench trial—awarded the class members $86 million in restitution, plus interest. Starbucks appealed.

The appellate court concluded that the Starbucks tip-allocation policy did not violate California law, and that the lower court's decision was improperly based on a line of tip-pooling decisions inapplicable to the issue at hand.

Tip Sharing

The tips in this case had not been given to particular employees by the customers, and were not shared with store managers or assistant managers. There was nothing in the case law to suggest that tips from a collective box could not be shared by all employees in proportion to hours worked, even if some employees had limited supervisory tasks.

The tip-allocation policy did not violate the Labor Code, or the UCL, because it did not allow agents or employers to share in tips left for employees, the appellate court held.

Supervisors as “Agents”

The baristas argued that the shift supervisors who shared in the tips were "agents" of Starbucks. However, the appellate court found that they were not agents because they did not "supervise, direct, or control" other employees.

Therefore, the lower court's decision was reversed, and the appellate court directed judgment to be entered in Starbuck's favor.

The June 2 decision is Chau v. Starbucks Corp., CCH State Unfair Trade Practices Law ¶31,827.

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