Tip pools and tip sharing are hot topics in New York for hospitality industry employers. The Second Circuit recently certified questions to the New York Court of Appeals seeking to clarify the New York Labor Law's prohibition against participation by an employer's "agents" in tip pools and sharing arrangements. The court's certification order came in two consolidated class actions involving Starbucks' "baristas." These cases address whether Starbucks employees with certain supervisory responsibilities may participate in Starbucks' tip pools.

Barenboim v. Starbucks Corp.: Baristas Seeking to Exclude Shift Supervisors from Tip Pools

In Barenboim v. Starbucks Corp., the issue before the district court was whether shift supervisors are entitled to share in the gratuities deposited in tip jars with baristas. The plaintiffs argued that the shift supervisors, by assigning them to positions during their shifts, administering break periods, directing the flow of customers, and providing feedback on their performance, are supervisory agents of the employer and thus ineligible to participate in tip pooling under Section 196-d of the Labor Law.

The district court rejected this argument and granted summary judgment in favor of Starbucks. It concluded that shift supervisors, although exercising limited supervisory functions, did not have the broad managerial authority or power to control employees that would be required to render them "agents" of the employer under Section 196-d. Thus, the district court affirmed Starbucks' policy of distributing tip jar proceeds to shift supervisors as well as baristas.

Winans v. Starbucks Corp.: Assistant Store Managers Seeking to Participate in Tip Pools

The second case, Winans v. Starbucks Corp., presented a similar issue in inverse form: a putative class of assistant store managers ("ASMs") claimed that they are not agents of the employer and thus are entitled to participate in the stores' tip pools. Further, they argued that Starbucks was mandated by the Labor Law to include them in these pools.

ASMs work with the store managers to make hiring and termination decisions, assign shifts to baristas and shift supervisors, evaluate employee performance, recommend corrective action, and process payroll. Despite these managerial responsibilities, the plaintiff in Winans argued that ultimate managerial control is held by the store managers alone. The ASMs spend a majority of their shift, the plaintiffs argued, serving and assisting customers rather than supervising employees and performing managerial tasks.

As with Barenboim, the district court in Winans granted summary judgment for Starbucks. The court held that although there was a genuine issue of material fact as to whether ASMs are eligible for tip pooling under Section 196-d, they are not necessarily entitled to these gratuities. In other words, even if, despite their managerial responsibilities, ASMs are not "agents" of the employer, Section 196-d does not compel Starbucks to include these employees in its tip pools. Thus, the district court upheld Starbucks' policy of not including ASMs in tip pools without deciding whether they are eligible under Section 196-d.

Is the New York State Hospitality Wage Order a Reasonable Interpretation of Section 196-d?

In the consolidated appeal, the Second Circuit also considered the parties' arguments with respect to the recently revised Hospitality Wage Order issued by the New York State Department of Labor. The Wage Order specifically provides that an employer may require that food service workers participate in a tip pool, and may set the percentage to be distributed to each occupation from the pool. See N.Y. Comp. Codes R. & Regs. Tit. 12, § 146-2.16(b) (2011). The Wage Order states that only food service workers who are primarily engaged in serving food or beverages to customers may participate in these pools. Id. § 146-3.4(a).

Starbucks argued to the Second Circuit that, under the Wage Order, shift supervisors are not precluded from participating in tip pools by their supervisory functions, since they are primarily engaged in customer service. The plaintiff in Barenboim responded by arguing that the Wage Order is an unreasonable interpretation of Section 196-d and is ultra vires.

Questions Certified to the New York Court of Appeals

The Second Circuit deferred decision on these issues, and certified the following questions to the New York Court of Appeals (the State's highest court):

  1. "What factors determine whether an employee is an 'agent' of his employer for purposes of N.Y. Lab. Law § 196-d and, thus, ineligible to receive distributions from an employer-mandated tip pool?"
  2. "To the extent that the meaning of 'employer or his agent' in § 196-d is ambiguous, does the Department of Labor's New York State Hospitality Wage Order constitute a reasonable interpretation of the statute that should govern disposition of these cases?"
  3. "Does [the Labor Law] permit an employer to exclude an otherwise eligible tip-earning employee under § 196-d from receiving distributions from an employer-mandated tip pool?"

Although the Court of Appeals has discretion whether to accept certified cases from the Second Circuit, it will almost certainly do so and decide the presented questions. Hospitality employers in New York should be on the lookout for the court's decision, which is likely to have a significant impact on their tip-pooling and tip-sharing policies and practices.