The Starbucks Case: A Wakeup Call For Employers In The Hospitality Industry

Sunday, June 1, 2008 - 00:00

Editor: Ms. Bloom, would you tell our readers something about your professional experience?

Bloom: I have been practicing law since 1982. Since coming to New York in 1985, I have specialized in employment law and since 1990 my practice has grown to include defending against employment class action cases, as opposed to an earlier focus on individual plaintiff cases. Over the past ten years, my practice has concentrated on defending against wage and hour class actions in addition to general employment matters that include race, age, and sex discrimination class actions. Most recently I have become one of the co-chairs of the complex litigation practice group in Proskauer's Labor and Employment Department.

Editor: I think everyone is aware of the explosion in class action suits involving consumers. You are saying that there has been significant growth in the employment law area as well?

Bloom: That is correct, and particularly in the wage and hour field over the past five or six years. When this development first got underway, some of the decisions in the wage and hour cases cited the older consumer cases.

Editor: You have been following the Starbucks tipping pool case as it proceeds through the courts in California. Would you give us the background of the case?

Bloom: The case originated with a group of employees that Starbucks calls baristas. These are the people behind the counter pouring coffee, and if you walk into a Starbucks you will usually see a box for customers to put tips in. At the end of the shift, these tips are apparently shared among certain employees, including those with the title of "shift supervisor." In California, the baristas challenged Starbucks' determination that the shift supervisors were entitled to participate in the tip pool.

Editor: Is the sharing of tips a widespread practice?

Bloom: Yes, the pooling or sharing of tips is widespread in the hospitality industry. There are a couple of common tip-sharing or pooling arrangements. The tips might be pooled in a single pot and then distributed on a pro rata basis or in accordance with the responsibility different positions entail. The other way is through a policy whereby an individual receiving a tip is required to share specific percentages of it with, say, a bartender or bus boy.

Editor: What do the Starbucks shift supervisors do?

Bloom: My understanding is based on the allegations of the plaintiffs and, of course, there are two sides to the argument. In the California case, the plaintiffs alleged that the shift supervisors exercised a certain degree of control over the terms and conditions of their, the baristas' , employment. They had the ability, according to the plaintiffs, to set schedules, impose discipline and either hire or fire, or make recommendations concerning the hiring or firing, of the baristas. They also participate in service and , as a consumer, I would have to say that one of the things most apparent about a shift supervisor at a Starbucks is that involvement. That is, they appear to be engaged in ensuring customers receive their coffee quickly. This is a point the court has not given sufficient weight to and it is, I believe, a very important one that needs to be taken into account.

Editor: What does California law say about the pooling of tips?

Bloom: The general rule in California is that someone who is an employer or an agent of an employer is not allowed to share in tips given to or left for an employee by a patron of the establishment. The real issue, in California and elsewhere, is who can be considered an agent of the employer. Someone can have the title of assistant manager, but that does not automatically preclude them from participating in the pool. It is the extent of the agent's authority that matters, and in California the statute indicates that a person lacking the ability to hire or fire, but possessing the authority to make recommendations on hiring or firing, can be an agent. But this point varies from jurisdiction to jurisdiction.

An earlier California case, Jameson v. Five Feet Restaurant, Inc., set the stage for Starbucks by expanding the definition of agent to include someone with the authority to make a recommendation on hiring or firing.

Editor: Would you take us through the arguments made in the Starbucks case?

Bloom: Essentially, the plaintiffs claim that the shift supervisors are not entitled to participate in the tip pool because of the level of control they exercise over the terms and conditions of the baristas' employment. On the other side, Starbucks argues that their shift supervisors are paid on an hourly basis and, more importantly, that they do not exercise such a degree of control that they should automatically be excluded from the pool. In making the latter argument, Starbucks points to the active involvement of the shift supervisors in customer service. I am not certain that the court has taken as much cognizance of that point as it might have. A proposed judgment is about to be filed, and I understand that the plaintiffs are supposed to file an application for attorneys' fees and costs.

Editor: And the magnitude of the case?

Bloom: The plaintiffs' case covers between 100,000 and 120,000 baristas, and the stakes are about $105 million before attorneys' fees and costs.

Editor: I understand that similar cases have been filed elsewhere.

Bloom: In Massachusetts, Minnesota and New York. New York is the most interesting case at the moment - a case has been filed by the baristas similar to what has been filed in California with respect to the shift supervisors, but there is also another New York case filed by the assistant managers and the trainees, who have been excluded from the tip pool, claiming that they should be allowed to participate if the shift supervisors are found eligible. So in New York we have substantially the same issue being addressed from two different angles.

Editor: At the end of the day, then, we might have case law in one jurisdiction diametrically opposed to case law elsewhere?

Bloom: That is correct in terms of how each jurisdiction defines agent. What matters is the extent of that person's authority and what the law of that jurisdiction says about authority, as to which there is a wide variance from one jurisdiction to another.

Editor: Please share with us the implications of this case.

Bloom: I think there are several things that are important about this case, in California and in the other jurisdictions where the issues it raises are being addressed. Obviously, the case is going to have a significant impact on the hospitality industry and on who can and cannot participate in a tip pool or a tip share. That, of course, may force many companies in the hospitality industry to revamp how they do things.

In a larger sense, the Starbucks case reflects the trend I referred to earlier with respect to class actions in the wage and hour field. The wage and hour laws currently in place were largely enacted in the 1930s, and they are not necessarily in line with the way companies do business today. The plaintiffs' bar is very focused in this area because, in light of the disconnect between the statutes and the way business is actually conducted, they often find it easy to come up with some technical violation of the law. Once they have accomplished that, it is relatively easy to bring a group of people together for a class action suit.

Another consequence, I think, is that we will see a greater volume of off-the-clock and overtime-related wage and hour cases, especially with the growing number of employees who work remotely and do not record their time in the traditional manner. The Starbucks case represents a wakeup call for employers to audit their existing wage and hour policies, see that they are enforced, and train their managers and supervisors to understand the issues. These class action cases are very expensive, and the best way to resist them is to take preventative action.

Editor: What would an audit entail?

Bloom: An audit entails looking at several things. First of all, I would look at time-keeping policies. How do employees track their time? Do they punch in and out? How are records of time worked maintained? What about overtime? And work that is carried on away from the employer's workplace? Of course, the somewhat intangible ways in which people today often work is something that must be looked at very carefully.

It is also essential to review the ways in which employees are classified. Very often, employees are called exempt when, in fact, they are not. On the question of a tip pool or tip share, of course, it is essential to know what groups participate and the extent of each group's authority.

Editor: For an employment law practitioner, does the Starbucks case represent a major shift in the law - in favor of the employee and contrary to the interests of management?

Bloom: I am not sure the case represents a major shift in the law. It just emphasizes that the courts tend to liberally construe the term "agent" in these situations.

Editor: As you know, most of our readers are general counsel and the members of corporate legal departments. What should we be calling to their attention with respect to the Starbucks case?

Bloom: It is important for corporate counsel to understand that the plaintiffs' bar is becoming more aggressive and more creative in wage and hour litigation. The best way to protect the company is to take preemptive action, which means to undertake an audit and make the changes that the audit indicates are necessary. At the same time, corporate counsel should encourage good human resources policies. These translate into happy employees, and that tends to result in less employee interest in these types of claims. I cannot underscore enough the significance of company policies that are compliant and work for both the company and its employees.

These types of cases are very difficult. Even if the employer wins, the amount of money spent on the case and the time key executives may have to spend on it is often out of all proportion to the legal victory.

Editor: Is there anything you would like to add?

Bloom: In the past many employers have used arbitration agreements to address issues such as the ones raised in the Starbucks case. I believe we will see fewer arbitration agreements in the wage and hour arena. There is a sense that arbitrators tend to give employers less protection than the courts, and notwithstanding some of the pronouncements made in the Starbucks case, the employer often has strong arguments to be heard in a courtroom setting. Again, getting things in order internally and in advance of a lawsuit is far better for an employer than expending the time and resources to be finally vindicated in court.

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