On June 2, 2009, the California Court of Appeal for the Fourth Appellate District, Division One, dramatically reversed an $86 million dollar judgment previously entered against Starbucks in a class action lawsuit by a San Diego trial court.   The Appellate Court determined that Starbucks did not violate California Labor Code § 351 by requiring an equitable distribution of  tips specifically left in a collective tip box for its service team comprised of both baristas and shift supervisors. (Jou Chau, et al. v. Starbucks Corporation (6/2/09) D053491 (Super.Ct.No.GIC836925)).

Jou Chau, a former Starbucks barista, brought a class action against Starbucks Corporation challenging its policy which permitted shift supervisors to share in tips that customers place in a collective tip box.  At trial, the Court agreed that Starbucks’ tip allocation policy violated California Labor Code § 351, which prohibits an employer’s “agent” from taking any portion of a tip that is left for an employee.  The Appellate Court sharply disagreed, stating even if shift supervisors were the employer’s agents, as defined by California Labor Code § 350, Starbucks did not violate California Labor Code § 351 by permitting shift supervisors to share tip proceeds that customers left in collective tip boxes for both baristas and  shift supervisors.

In its reasoning, the Appellate Court relied on undisputed facts establishing that 90-95% percent of the time, shift supervisors perform the same tasks as baristas, that both baristas and shift supervisors work as a team to serve the customers coffee, that shift supervisors have very limited authority to control and/or direct the work of baristas, that shift supervisors have no authority to hire, fire or discipline employees, that when placing tips in the tip box, the customer actually intends that the tip be shared with the service team, which includes shift supervisors, that Starbucks has an equitable tip distribution policy to apportion tips among team members and, finally, that assistant store managers and store managers are not permitted to participate in the tip sharing process.

In a ruling tailored to the specific facts of this case, the Appellate Court specifically determined that California Labor Code § 351 did not prevent shift supervisors from sharing in the proceeds placed in collective tip boxes.  But, the Court was also careful to distinguish its ruling in this case from previous, tip-pooling cases, where employers unlawfully forced servers to share tip proceeds with the employer’s supervisors and managers.  It remains to be seen whether the California Supreme Court will accept review of this decision which likely will be appealed.

Here is another extreme example of the costs an employer may incur if its pay policies violate California law.  If you have a tip pooling or tip allocation policy in place, it might be advisable to seek a legal review of that policy to verify that it is in conformity with California law.