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Court Dumps Grounds for $86 Million Verdict Against Starbucks
The Recorder
June 03, 2009
A state appeal court brewed up a controversy Tuesday by ruling that Starbucks Corp.'s tip-pooling policies don't violate California law (pdf) because gratuities are gathered collectively and shared equally.
The decision negates $86 million in restitution that a San Diego, Calif., judge awarded last year to a class of baristas who had sued the coffee giant.
"Starbucks' policy ensures that if a customer places money in a collective tip box with the intention that it be shared among baristas and shift supervisors, each employee will retain his or her fair share of the tip proceeds," Justice Judith Haller of San Diego's 4th District Court of Appeal wrote inChau v. Starbucks Corp., 09 C.D.O.S. 6774.
"In this way," she added, "Starbucks effectuates the customer's intent and does not permit the misappropriation of gratuities intended for a certain employee or employees."
Justices Alex McDonald and Joan Irion concurred.
Plaintiffs lawyer David Lowe, a partner with San Francisco's Rudy, Exelrod, Zieff & Lowe, immediately vowed to either file for a rehearing -- to clear up alleged factual errors in the ruling -- or seek review by the California Supreme Court.
"It's the application of law here that is totally off base," he said. "[It's] inconsistent with the plain language of the statute [and] departs from the interpretation of the statute [by] every other court to reach these issues. It's a results-driven example of judicial activism."
Tip-pooling cases are in vogue this year, with the California Supreme Court granting review in a case in late April to determine who qualifies to share in the money left by customers for good service in the casino setting. The seminal case is Leighton v. Old Heidelberg Ltd., 219 Cal.App.3d 1062, a 1990 2nd District decision that said tip pooling is OK as long as management doesn't get some of the cash.
But in recent months, at least four other appellate rulings have muddied the water about whether dishwashers, casino floor managers or others get to participate in tip sharing.
In the Starbucks case, now-retired San Diego County Superior Court Judge Patricia Cowett ordered Starbucks to pay $86 million in restitution after finding that the Seattle-based coffee maker had violated California law by letting shift supervisors participate in tip sharing. Cowett declared shift supervisors "agents," as defined in state Labor Code §351 as individuals ineligible for tip sharing.
On Tuesday, the 4th District declined to decide whether Cowett was correct on the "agent" issue. Instead, the court said that even if shift supervisors -- who perform all the duties of baristas, but also do other jobs such as opening and closing the stores -- are agents, it would be OK for them to share in the gratuities left in collective tip boxes found in Starbucks' 1,350 California stores.
"There is no logical basis," Haller wrote, "for concluding that §351 prohibits an employer from allowing the shift supervisor to retain his or her portion of a collective tip that was intended for the entire team of service employees."
"The shift supervisor keeps only his or her earned portion of the gratuity," she added, "and does not 'take' any portion of the tip intended for services by the barista or baristas."
Rex Heinke, the partner in Akin Gump Strauss Hauer & Feld's Los Angeles office who represented Starbucks, referred all calls to the coffee chain. In a prepared statement, the corporation expressed satisfaction with the decision.
"It validates our longstanding tip policy," the statement said, "which ensures that both baristas and shift leads -- the hourly partners (employees) in every Starbucks store -- receive a fair share of the tips that customers leave for the legendary service they provide."
