In a pair of suits challenging Starbucks’ tip-pooling policy, New York’s highest court sided with the coffee chain.

Each week the tips collected in jars near registers at the hundreds of Starbucks stores in the state are distributed between baristas and shift supervisors based upon the number of hours worked. Two other categories of employees – assistant store managers and store managers – are excluded from the pool.

Starbucks employees in New York filed suit over the policy in two different cases. First, a group of baristas argued that shift supervisors should not be allowed to share in tips; in the second, assistant store managers argued they should be included in the tip pool. A federal court judge ruled for Starbucks in both cases. On appeal the 2nd U.S. Circuit Court of Appeals certified question of state law to the New York Court of Appeals.

The federal appellate court sought guidance interpreting Labor Law §196-d, which states: “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. … Nothing in this subdivision shall be construed as affecting the … sharing of tips by a waiter with a busboy or similar employee.”

The baristas argued that shift supervisors are “agents” of Starbucks because under the statute any supervisory responsibility – however slight – renders an employee an agent and ineligible to participate in a tip pool. Meanwhile, the assistant store managers contended they were not “agents” and that only those with “full” managerial authority, like the ability to hire and fire, constituted agents. Starbucks disagreed with both groups.

Relying heavily on the New York State Department of Labor’s interpretation of the statute, the court upheld Starbucks’ policy. Duties, not titles, should determine an employee’s eligibility to participate in a tip pool, according to the state DOL.

“[T]he DOL has consistently and, in 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 capacity,” the court wrote. Even the slightest degree of supervisory responsibility does not automatically disqualify an employee from sharing in tips under §196-d, the court told the baristas. Reliance upon a similar Massachusetts case was displaced, they added, because the statute interpreted for those baristas contained a categorical prohibition against tip-splitting.

As for the assistant store managers, their level of responsibility was enough to kick them out of the pool, even without full or final authority to hire or terminate. “[W]e 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,” the court said. “We conclude that the line should be drawn at meaningful or significant authority or control over subordinates.”

Examples of “meaningful authority” include input in the creation of employee work schedules, assistance in performance evaluations, or participation in the process of hiring or terminating employees.

“In sum, 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 Labor Law §196-d, even if that employee possesses limited supervisory responsibilities,” the court concluded. “But an employee granted meaningful authority or control over subordinates can no longer be considered similar to waiters and busboys within the meaning of section 196-d and, consequently, is not eligible to participate in a tip pool. We leave it to the federal courts to apply these principles” in the [barista] and [assistant store manager] cases.”

To read the decision in Barenboim v. Starbucks, click here

Why it matters: Having interpreted the New York Labor Law in accord with the coffee chain’s position, the court declined to take a firm position on whether an employer may deny tip-pool distributions to an employee who is nevertheless eligible to split tips under Labor Law §196-d. While the federal district court answered the question in the affirmative, New York’s highest court said it generally agreed but left “open the possibility that there may be an outer limit to an employer’s ability to excise certain classifications of employees from a tip pool.” Because Starbucks’ policy did not violate the statute, however, the court declined to resolve such a hypothetical scenario – leaving an unanswered question for a later date. As to the court’s interpretation of the statute, the “meaningful authority standard” established should provide guidance to employers attempting to craft valid tip policies under state law.