Massachusetts Employment Law Letter

Oh beans! Starbucks on the hook for major violation of Massachusetts Tips Act

Starbucks, the world’s largest coffeehouse company, is in hot water (or coffee) here in Massachusetts.  Recently, the First U.S. Circuit Court of Appeals, which governs federal law in Massachusetts, affirmed a lower court judgment awarding a group of Starbucks employees over $14 million dollars because the company had an unlawful tip pooling arrangement. The case has major implications for employers with tipping policies.  In addition, it should have all employers reviewing wage and hour practices to be sure they are not the next ones to get hit hard for wage-related claims.

Coffee talk

Although Starbucks has a seemingly endless variety of drink choices, the company divides up its coffee house staff in more limited fashion.  Employees have one of four designations:  store manager, assistant manager, shift supervisor, or barista.  Both the shift supervisors and baristas are hourly employees and share many of the same job responsibilities, including serving food and beverages to customers.  However, shift supervisors have some managerial duties.  They open and close the store, handle accounting for cash, and ensure baristas take scheduled breaks.  In the absence of a store manager or assistant manager, the shift supervisor is the ranking employee.

Tipping time

As many of our readers know, Starbucks’ stores typically maintain tip containers near the register where satisfied customers can deposit extra change or even folding bills.  Pursuant to Starbucks’ policy, these gratuities are pooled and distributed weekly to baristas and shift supervisors in proportion to the number of hours worked each week by the individual employee.

In 2008, a group of current and former baristas in Massachusetts brought a class action lawsuit claiming that this tip pooling arrangement violated the Massachusetts Tips Act.  A class action is a form of lawsuit in which a large group of individuals who have suffered a common harm collectively file a claim in court.  The “class” is represented by one or more “named” individuals, in this case the group of baristas.  The collective class totaled over 11,000 current and former baristas allegedly harmed by Starbucks’ tipping policy.

No sharing

The baristas claimed that the policy was unlawful because the shift supervisors were allowed to share in the tipping pool.  The Massachusetts Tips Act, which was enacted almost a decade ago, provides that employers cannot require “wait staff” to share their tips with those who are not “wait staff employees.”  The Tips Act expressly provides that those with managerial responsibilities are not “wait staff employees.”  Simply put, “wait staff” cannot be asked to share their tips with employees who have managerial responsibilities.  The baristas argued that the shift supervisors had managerial responsibilities and therefore could not share in the tips.

The lower court sided with the baristas and ruled against Starbucks.  In addition, the court awarded triple damages, under the Massachusetts Wage Act, which calls for mandatory trebling of damages in unpaid wage claims, along with attorneys’ fees and court costs.  The court entered judgment for the plaintiffs in the staggering amount of $14,126,542.  Not surprisingly, Starbucks appealed.

Decision upheld

Before the First Circuit, Starbucks insisted that the shift supervisors did not have managerial responsibilities.  The coffee giant pointed to the fact that up to ninety percent of the shift supervisors’ responsibilities were the same as the baristas’.  Moreover, the shift supervisors had no authority to hire, fire, or discipline baristas.  In essence, Starbucks claimed that although the shift supervisors “supervised” baristas, they did not “manage” them.  The First Circuit disagreed.

According to the court, the Tips Act “says what it means and means what is says.”  The Act is clear:  only employees who have no managerial responsibilities can qualify as “wait staff.”  The court concluded that the supervisors’ limited managerial experience was enough to prohibit them from collecting tips.

Starbucks’ claim that its supervisors didn’t “manage” any employees was also refuted by the evidence.  One Starbucks corporate representative testified that shift supervisors are responsible for “running the shift.”  The shift supervisors’ written job descriptions also hurt Starbucks.  The descriptions stated that each shift supervisor “directly managed” three to six employees while on shift.  Not good when you’re arguing the supervisors had no managerial responsibilities!

As if this was not enough, guidance from the Massachusetts Attorney General provided an additional problem for Starbucks.  The Attorney General issued an advisory notice on the Tips Act several years ago, explaining that “workers with limited managerial responsibilities, such as shift supervisors, do not qualify as wait staff employees.”  The position of the Attorney General was clear:  shift supervisors cannot share tips.  The court gave considerable weight to the AG’s position.

In the end, it was a straightforward decision from the court.  The Tips Act provides that employees cannot share in a tipping pool if they have any managerial responsibilities whatsoever.  The evidence demonstrated that the shift supervisors had some, albeit limited, managerial tasks.  This was sufficient to find that Starbucks violated the Tips Act by allowing the shift supervisors to share in the tip pools.  The case is Matamoros v. Starbuck (First Circuit Court of Appeals, 2012).

Bottom line

Clearly, this decision has major implications for Massachusetts employers who have tip pooling arrangements.  Massachusetts businesses need to be absolutely sure that employees with managerial responsibilities are not sharing in a tip pool.  The case also serves as a reminder that unpaid wage claims can be devastating.  Employers may be liable for three times the amount of unpaid wages due, plus attorneys’ fees and court costs.  Contact your labor and employment counsel if you have any wage and hour related concerns.

Article By: John S. Gannon, Esq.
Reprinted from the January 2013 issue of the Massachusetts Employment Law Letter.

John Gannon is an Associate at the firm of Skoler, Abbott & Presser, P.C.  John can be reached at (413) 737-4753 or jgannon@skoler-abbott.com.