Friday, March 28, 2008

Payroll Problems (Starbucks - Ouch)

We've all heard about the recent decision by a California Superior Court holding Starbucks liable for 100 plus million dollars because baristas had to share their tips with shift supervisors.

The positions of the parties (at least from a public relations standpoint) are pretty clear:

Starbucks: You've got to be kidding. 100 million dollars? Shift supervisors pour coffee just like baristas. Without a doubt, customers are sometimes tipping the shift supervisors for their service. You're telling us they can't share in the tips they've earned? You want us to screw our shift supervisors?

Plaintiffs: Why should supervisors be dipping their beak in our tip jar? And we're not screwing the shift supervisors. We're making sure you don't screw us. Just pay the shift supervisors more if you're so concerned about them. (100 million dollars over four years more, because that's how much they took from us.)

(A collection of quotes from the parties is here. Scroll down)

The Thumbnail: The genesis of the lawsuit is California Labor Code 351, which provides in part: "“No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to or left by a patron . . . ."

So, are shift supervisors - who I understand serve coffee side-by-side with baristas - employers or agents?

Well, probably not employers. However, "agent" is defined as "every person other than the employer having the authority to hire or discharge any employee or supervise, direct, or control the acts of employees." California Labor Code 350. I believe that one of the big issues in the case is whether shift supervisors are "agents." The fact that agents are people who "supervise," and Starbucks calls these people "shift supervisors" probably doesn't help the Company too much.

But that might not end the analysis. Another section of Labor Code 351 states that "Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for."

Do you see tension? The shift supervisors, in addition to maybe being agents, are definitely Starbuck employees. (Section 350 defines an "Employee" as "every person rendering actual service in any business for an employer.")

So, if the tip was left in part for the shift supervisors (and it surely was - customers don't distinguish between baristas and supervisors), then there's an argument that Starbucks had to give the shift supervisors their share in the tips. If it didn't, the supervisors could have brought a class action, claiming that Starbucks had taken from them a portion of their "sole property," i.e., the share of the gratuity that was left for them.

An employer can't possibly have an obligation to share and not share the same gratuity, yet that is what the statute seems to suggest with respect to supervisors who earn gratuities along with their co-workers and peers.

The appeal will be interesting. Plaintiffs (and their counsel) should not be counting their chickens just yet.

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