On June 2, 2009, the California Court of Appeal issued an important and favorable “tip-pooling” decision for California employers. In Chau v. Starbucks Corporation, the Court of Appeal reversed a ruling of the San Diego County Superior Court awarding a class of Starbucks employees over $86 million in restitution under Business & Professions Code section 17200 (the UCL) based on a violation of Labor Code section 351. The Court of Appeal concluded that the trial court’s interpretation of section 351 was not supported by the language of the statute, which led to a result contrary to its fundamental purpose.  

Case Background

Starbucks operates 1,350 stores in California, employing baristas, shift supervisors, assistant store managers, and store managers. Baristas are responsible for customer service, such as cashiering and making coffee. Shift supervisors have similar duties, but also supervise baristas, open and close the store, and deposit money.  

Starbucks provides a collective tip box at the cash register for customers who choose to tip the employees serving them. Most tipping is done via the tip box; individual tipping is not common. Tips are collected from the box throughout the day. Only baristas and shift supervisors share the tips collected in the tip box; managers are excluded. Starbucks distributes tip box money to the baristas and shift supervisors based on the amount of money collected and the hours the employees have worked.  

In October 2004, plaintiff Chau, a former barista, filed a class action against Starbucks, claiming that Starbucks violated the UCL and Labor Code section 351 by allowing shift supervisors to share in the tip pool. Chau alleged that shift supervisors were “agents” under Labor Code section 350, and therefore not permitted to share tips under section 351. The trial court certified a class of Starbucks baristas who were required to share tip pools with shift supervisors.

The trial court ruled in Chau’s favor, finding shift supervisors to be “agents” because they had the authority to “supervise” and “direct” the acts of employees. The court held that because shift supervisors were agents, they were disqualified from sharing in the tip pool under section 351, which provides that “[n]o 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.” The trial court awarded over $86 million in restitution, and enjoined Starbucks from continuing this tip-pooling practice. Starbucks appealed.

The Appeal

The Court of Appeal reversed, concluding that “[e]ven if shift supervisors can be considered “agents” within the meaning of section 350…Starbucks did not violate section 351 by permitting shift supervisors to share in the tip proceeds that were left in a collective tip box for baristas and shift supervisors.”

In a very commonsense take on tip-pooling, the court discussed two types of tip-pooling, one in which employees all contribute their tips to a pool that are then distributed among non-managers, and the other in which a tip jar is left and the money is shared only among employees who provide the service for which the tips were left.

Evidence presented to the trial court showed that shift supervisors spent 90 to 95 percent of their time performing the same duties as baristas. As such, Starbucks customers likely are leaving tips for the shift supervisor in the same proportion as for the baristas. Therefore, the court found that distributing the tip box on a pro-rata basis at the end of the shift would be no more likely to overpay a shift supervisor than a system where customers were required to hand their tips to the person who provided them service. The court reasoned: “It would be inconsistent with the purpose of the statute to require an employer to disregard the customer’s intent and to instead compel the employer to redirect the tips to only some of the service personnel.”

Conclusion

Chau v. Starbucks clarifies that even “agents” of an employer can receive tips from a tip pool as long as it can be established that they receive approximately the amount of tips the customers intended to leave for them. This may be a difficult rule to apply outside of the coffee shop or small kiosk setting because supervisory employees generally do not spend 90 to 95 percent of their time doing the same work as their subordinates.

Chau v. Starbucks is a published appellate court decision but is not final and may be subject to review by the California Supreme Court.