On November 21, 2013, the Second Circuit affirmed a Southern District of New York decision granting summary judgment to Starbucks in a class action that alleged shift supervisors had inappropriately participated in tip-sharing with baristas.
The class action alleged that Starbucks had violated New York Labor Law § 196-d, which provides that “no employer or his agent or an officer or agent of any corporation, or any other person shall demand or accept, directly or indirectly, any part of the gratuities received by an employee or retain any part of a gratuity or of any charge purported to be a gratuity for an employee.” The Second Circuit certified two questions to the New York Court of Appeals seeking assistance in interpreting the law at issue. The Court of Appeals rejected the plaintiffs’ argument that § 196-d bars any employee with even the slightest degree of supervisory responsibility from sharing tips. Rather, the court concluded, “the line should be drawn at meaningful or significant authority or control over subordinates” and further explained “an employee whose personal service to patrons is a principal or regular part of his or her duties may participate in an employer-mandated tip allocation arrangement under [§ 196-d] even if that employee possesses limited supervisory responsibilities.”
In a summary order, the Second Circuit affirmed the decision of the lower court. The court determined that shift supervisors’ principal duties are to provide service to patrons and are identical to baristas’ primary duties. It further found that shift supervisors do not create work schedule or discipline baristas. Based on these facts, the court determined that the Starbucks shift supervisors do not have meaningful or significant control over subordinates and, therefore, they are allowed to participate in the tip-sharing program under § 196-d.
The First Circuit addressed an identical case last year under Massachusetts law, but ruled in favor of the baristas. As a result, Starbucks was forced to pay over $14 million in damages and ultimately raised the hourly wage of its shift supervisors by $3 since all tips would be left to the baristas. These decisions serve as a reminder to service industry employers to review their tip-sharing policies and to be aware of the potentially inconsistent laws in each jurisdiction in which they operate.