The First Circuit Court of Appeals has determined, as a matter of first impression, that Starbucks Corp. violated a Massachusetts law prohibiting restaurant tips to be shared with employees who have managerial responsibilities, because the “upscale coffee house” chain allowed tips collected in tip jars by the cash registers of its Massachusetts shops to be shared by shift supervisors and baristas. Matamoros v. Starbucks Corp., Nos. 12-1189, -1277 (1st Cir., decided November 9, 2012).

Massachusetts apparently amended a tip-sharing law in 2004. Under the earlier version, the courts applied a “primary duty” test to decide whether an employee could participate in a tips pool—if the primary duty was to serve customers, he could participate; if the primary duty was to manage, she was ineligible. After amendment, the legislature clearly defined a “wait staff employee” as someone, among other matters, “who has no managerial responsibility.” The court agreed with the plaintiffs that this established a bright-line standard, excluding employees with any level of managerial responsibility. An attorney general opinion also supported this interpretation. Reviewing the evidence “describing the work actually performed by the shift supervisors,” the court said, “makes it pellucid that shift supervisors possess managerial responsibility. Any other conclusion would blink reality.”

The First Circuit also determined that the district court did not abuse its discretion in certifying a statewide class of baristas and that the lower court properly trebled the damages for tips shared with supervisors after July 11, 2008, under a Massachusetts Wage Act provision that took effect the next day, allowing automatic trebling of damages from that point forward. Starbucks had argued that this provision transgressed “due process by requiring the automatic imposition of punitive damages without a finding of reprehensibility.” According to the court, the treble damages provision “reflects a reasoned legislative judgment” and is “a liquidated damages provision,” not punitive damages. The First Circuit also rejected the plaintiffs’ contention that pre-2008 damages should have been trebled, finding that the company’s conduct was not outrageous.

In this regard, the court stated, “Outrageousness is often a matter of degree. Most people would think that bilking a widow out of her life’s savings is outrageous; some would think that charging $5.25 for a salted caramel mocha frappuccino is outrageous. But everyone would agree that the two acts are qualitatively different, and are not deserving of the same level of opprobrium.” The court found no reason to disturb the district court’s determination about the company’s conduct. Accordingly, the appeals court upheld its $14.1 million judgment.