I have written before on these tip pool cases involving Starbucks and other restaurants where the tip credit (which allows an employer to pay a sub-minimum wage) is destroyed.  This happens because “improper” people (i.e. managers) share tips along with rank-and-file employees.  Suffice to say that the liability in these cases can be astronomical, because the employer must pay the difference between the tip credit wage, usually $2.13 per hour and the minimum wage ($7.25 under federal law).  The First Circuit has recently demonstrated how devastating this principle of law can be, ordering Starbucks to pay class action members $14.1 million in damages over tips that were improperly taken from them.  The case is entitled Matamoros et al v. Starbucks Corporation.

The class action was launched in 2008; the latest incarnation of this long-running battle goes back to March 2011, when the First Circuit ruled that the shift supervisors were actually managers, as that term is defined under the state law entitled the Tips Act; the same principles obtains under FLSA regulations.  Thus, they were precluded from sharing in the tip pools.  Indeed, the Court was rather harsh in its description of the Company’s defense.  The Court wrote that Starbucks' "protest is disingenuous.”  The Court further observed that “Starbucks is the architect of these tip pools, which flout the law and lump together eligible and ineligible employees. If there is an inequity, the fault lies with Starbucks — not with the Tips Act.”

The Company contended that because the shift supervisors spent a great deal of time doing the same work as their subordinates, i.e. making coffee, working the cash register, that their “primary duty” which is the FLSA test for the executive exemption, was not management.  The Court rejected this argument, as did the federal district court below.

The lower court decision, however, left both sides dissatisfied.  The Company appealed, claiming that summary judgment had been inappropriately awarded to the plaintiffs.  The plaintiffs cross-appealed, contending that the lower court erred by not giving them treble damages (as was allowable under the Tips Act).

A “manager” will still be deemed a manager, under the law, even if they perform a fair/large amount of non-exempt work, if they retain management/supervision as their primary duty, even when they are performing non-exempt duties.  This is a gray line, or perhaps a slippery slope, but employers have to be keenly aware of this legal doctrine, if they seek to defend a tip pooling case by contending that their managers have lost their supervisory status.