I had a smart aleck friend who tried to come up with the Starbucks coffee order that had the greatest number of syllables.  I can’t remember the winning combination, but it definitely had the words “half-caf” and “cinnamon”, some sort of milk substitute, and a very long word ending with the letters “iato.”  He largely gave up, however, when he and I sat near the counter at a Starbucks next to a local university and half the students ordered drinks with not appreciably shorter names as a matter of course.

Given this daily act of caffeinated alchemy, it shouldn’t be any surprise that Starbucks plotted a similarly difficult course in having certain supervisory employees participate in tip pools in a recent set of class action cases before the New York Court of Appeals and the United States Court of Appeals for the Second Circuit.

There were actually two cases at issue, but they both stemmed from the same general set of issues regarding the sharing of tips with supervisory staff.  New York state law, similar in some respects to federal law, limits the types of employees who are permitted to share in tip pools.  New York Labor Law 196-d states with less than perfect clarity 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. . . . Nothing in this subdivision shall be construed as affecting the . . . sharing of tips by a waiter with a busboy or similar employee. 

Starbucks treats its assistant managers as salaried exempt under state and federal law.  It also employs non-exempt hourly shift supervisors who supervise baristas, but report to the store manager and assistant managers. Shift supervisors share in tip pools with the baristas, but assistant managers do not.  Paradoxically, two putative class lawsuits were filed in federal court in 2008, one by the baristas complaining that they should not have to share their tips with the shift supervisors, and the other by the assistant managers claiming that they, too, should be allowed to share in the tip pool.  Confused yet?

The Second Circuit certainly was.  Starbucks was granted summary judgment by the district court in both cases, and both sets of plaintiffs appealed to the Second Circuit.  That court, in turn, threw up its hands and sent two certified questions (one with multiple subparts) to the Court of Appeals of New York. 

On June 26, 2013, in Barenboim v. Starbucks Corp., Case No. 122 (June 26, 2013), the Court of Appeals of New York issued two rulings.  First, it held that the sharing of tips with hourly shift supervisors was proper because, although they did exercise some managerial authority, serving customers was their “principal” job function.  Second, it found that the company was under no requirement to require the sharing of tips with assistant managers or, apparently, other upper level employees.

Incidentally, if you ever wonder what happens to the tips you put in the plexiglass box on a Starbucks counter, the court succinctly describes how the process works.

The Barenboim decision highlights some of the difficulties in managing tip policies and supervisory duties in a service environment.  In New York, at least, Starbucks has been held to have navigated its course correctly, but each employer should examine its own operations both as a legal matter (can certain employees share in tips) and as a business matter (does it make sense for the business to have those employees share in tips).

While we’re on the topic of the use of tips, at the United States’ opposite geographical extreme, Hawaii, the state Supreme Court held last Tuesday that a restaurant employer collecting a “service charge” from its patrons must pay the charge to the food and beverage service employees unless it tells customers otherwise.  See Villon v. Marriott Hotel Services, Inc., SCCQ-11-747 (S. Ct. Hawaii, July 16, 2013). We’ll blog that case, which has potentially broader application in certain industries, separately.

The Bottom Line:  In New York, tip sharing with lower-level supervisors is lawful, but beware of who is sharing in tips and their principal job duties.