NY Court of Appeals Starbucks Decision
On June 26, 2013, the New York State Court of Appeals responded to both Barenboim v. Starbucks and Winans v. Starbucks by holding that Starbuck Baristas must share their tips with Shift Supervisors but the company may be entitled to deny those same tips to Assistant Managers. In so holding, the Court of Appeals has methodically laid out the proper line of thinking in regards to how the New York hospitality industry should manage the tips given to its employees.
This decision arose from two separate cases brought against Starbucks Corporation regarding the Starbucks policy regarding the collection, storage and distribution of customer tips in regards to its workforce. Starbucks Corporation is a Washington based coffeehouse company that operate hundred of outlets in New York State. In each store, Starbucks employs four categories of employees: Baristas, Shift Supervisors, Assistant Store Managers and Store Managers. Baristas are the front-line, entry-level, part-time employees responsible for tasks such as taking orders, making and serving coffee and operating the cash register. Like Baristas, Shift Supervisors are hourly paid, part time employees primarily responsible for servicing food and beverages to customers. In fact, they spend nearly all their time performing the same customer-related duties undertaken by Baristas. However Shift Supervisors have some supervisory responsibilities, such as assigning baristas to particular positions during their shifts, directing the flow of customers and providing baristas with feedback about their performance. Assistant Store Managers represent the third rung in the Starbucks hierarchy. Although Assistant Store Managers also spend a majority of their time performing customer-oriented services, they also possess greater managerial and supervisory authority than shift supervisors such as interviewing applicants, assigning work shifts and supervisors, evaluating employee performance and make hiring and firing decisions. Furthermore Assistant Store Managers are full-time employees who receive a salary and are eligible for bonuses and benefits. Store managers constitute the highest rank in the workforce structure as they are responsible for the overall operation of the store and receive even more salary and benefits as Assistant Store Managers.
Starbucks written policy governing the collection, storage and distribution of customer tips explains that Starbucks will collect tips from tip container on a weekly basis and distribute those tips to Baristas and Shift Supervisors in proportion to their hours worked at the store. Starbucks does not permit Assistant Store Managers or Store Managers to share in this weekly distribution of tips.
The first case, Barenboim v. Starbucks arose from two former Starbucks baristas, Jeana Barenboim and Jose Ortiz (collectively, Barenboim) bringing a class action in the United States District Court for the Sothern District of New York alleging that Starbucks’ policy of including shift supervisors in the tip pools was unlawful under Labor Law § 196-d. Barenboim made this argument by attempting to show how the law does allow Shift Supervisors, who are Starbucks “agents”, to “demand or accept, directly or indirectly, any part of the gratuities, received by an employee”. On cross motions for summary judgment, the District Court granted Starbucks’ motion, concluding that Labor Law § 196-d does not bar shift supervisors from participating in tip pools because of their very limited supervisory responsibilities not carrying the broad authority or power to control employees as an agent generally can. Barenboim appealed.
The second case, Winans v. Starbucks brought a similar claim as Barenboim, only it was from the different end of the spectrum. More specifically, Winans arose from 5 former Starbucks Assistant Store Managers filing complaints asserting that they were NOT ineligibly “agents” and, therefore, they as well as Baristas and Shift Supervisors should be entitled to participate in the tip pools under Labor Law § 196-d. On cross motions for summary judgment, the District Court concluded there was a triable issue of fact as to whether assistant store managers are tip-pool eligible, however they still granted Starbucks summary judgment on the ground that Labor Law § 196-d does not compel an employer to include any particular eligible employee in a tip pool. Winans appealed.
Realizing that the two appeals presented similar unresolved question of New York law, the Second Circuit certified the following questions to the New York State Court of Appeals:
(1) What factors determine whether an employee is an ‘agent’ of his employer for purposes of Labor Law § 196-d and, thus, ineligible to receive distributions from an employer-mandated tip pool?
(2) Does New York Labor Law permit an employer to exclude an otherwise eligible tip-earning employee under Labor Law § 196-d from receiving distributions from an employer-mandated tip pool?
Both Barenboim and Winans make arguments regarding whether to be deemed an “agent” , an employee must display a specific level of supervisory responsibility. Barenboim asserts that any supervisory responsibility renders an employee an agent and therefore, ineligible to participate in a tip pool, while Winans argues the exact opposite, contending that only employees with “full” managerial authority, should be viewed as agents.
The New York Court of Appeals, ended up taking the middle ground between these two views and in favor of Starbucks. In so holding, the Court emphasized the Department of Labor (DOL) opinion that Labor Law § 196-d contains crucial, operative language relevant to tip-splitting practices as well as its Hospitality Industry Wage Order (Wage Order), which codified at 12 NYCRR part 146. More specifically, the Court stated that by using these two tools together:
It is evident that employer-mandated tip splitting should be limited to employees who, like waiters and busboys, are ordinarily engaged in personal customer service, a rule that comports with the “expectations of the reasonable customer.”
The Court also noted that:
The DOL has consistently and, our view, reasonably, maintained that employees who regularly provide direct service to patrons remain tip-pool eligible even if they exercise a limited degree of supervisory reasonability.
These perspectives all but eliminated any claim that Barenboim had.
On the other end of the spectrum, Winans still had an argument given that they only argued that an employee having final or full authority over others should be the only thing that will make someone ineligible to receive tips. However the Court disagreed with that rationale as well since the Court established it did not believe in an all or nothing test when the Court stated:
But we believe that there comes a point at which the degree of managerial responsibility becomes so substantial that the individual can no longer fairly be characterized as an employee similar to general wait staff within the meaning of Labor Law § 196-d. Meaningful authority might include the ability to discipline subordinates, assist in performance evaluations or participate in the process of hiring or terminating employees, as well as having input in the creation of employee work schedules, thereby directly influencing the number and timing of hours worked by staff as well as their compensation.
Essentially, the Court was saying that the power to hire and fire is not the exclusive test to determining whether someone is eligible to receive tips.
In regards to whether the New York Labor Law permits an employer to exclude an otherwise eligible tip-earning employee under Labor Law § 196-d from receiving distributions from an employer-mandated tip pool, the Court simply states that the District Court effectively answered yes and that they generally agree. However the Court makes sure to mention that they believe there is a possibility that an outer limit may exist to an employer’s ability to eliminate certain classification of employees from a tip pool.
Judge Smith also provided a partially dissenting opinion stating that the Labor Law § 196-d is inapplicable to this case. Judge Rivera also dissented in part in regards to the second question presented by the Second Circuit.
For practitioners, the most important lesson is simple. If you are representing employees that have worked in the New York hospitality industry and their employers collected tips to distribute later, you must look into the test laid out in this case to determine if those employees qualify as having sufficient managerial duties that make them exempt from collecting tips. Going forward, an employee working in New York that simply has some managerial duties will not be sufficient to make them exempt from receiving tips. Fitapelli & Schaffer has successfully represented many restaurant, bar and nightclub workers in recovering unpaid tips and gratuities. If you believe your employer has retained tips or distributed dips to employees with management authority, please contact the NYC Employment lawyers of Fitapelli & Schaffer for a free consultation.