In November 2013, in Barenboim v. Starbucks Corporation, the Second Circuit affirmed a district court decision holding that the inclusion of hourly shift supervisors in the employer mandated tip allocation arrangement was lawful under New York's wage payment statute, which provides that no employer or his agent or officer shall demand or accept any part of the gratuities received by an employee. N.Y. Labor Law § 196-d. The case involved a putative class action lawsuit filed by baristas alleging that it was unlawful for shift supervisors to participate in the tip pool because they are "agents" under New York Labor Law.

In an earlier appeal in the case, the Second Circuit had certified two questions to the New York Court of Appeals regarding the interpretation of § 196-d: (1) what factors determine whether an employee is an "agent" of his employer for purposes of the New York Labor law and (2) whether the law permits an employer to exclude an otherwise eligible tip-earning employee from receiving distributions from the tip pool. In June 2013, the New York Court of Appeals held that employees who provide services to patrons as a principal or regular part of their duties may participate in an employer mandated tip pool even if they possess limited supervisory responsibilities, whereas employees who have meaningful authority and control over subordinates may not. The Court of Appeals defined meaningful and significant authority to include the ability to discipline subordinates, assist in performance of evaluations, participate in the hiring and firing of employees, and provide input in the schedule or otherwise influence the hours and compensation of co-workers. The court further found that the company was under no obligation to require the sharing of tips with assistant managers.

Given this interpretation and based on the record, the Second Circuit held that no factfinder could conclude that shift supervisors have such a "substantial" degree of "managerial responsibility" that they are no longer akin to "general wait staff" under § 196-d. Accordingly, the district court correctly awarded summary judgment to Starbucks.

Planning Tip:  While the Second Circuit issued its decision as a "Summary Order," which does not have precedential effect, the decision is nonetheless favorable to hospitality industry employers. Moreover, since the New York statute mirrors similar wage payment laws in other states, the New York Court of Appeals' decision is likely to have nationwide implications.