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Court Sets Limits on Who Can Share in Tip Pools

On June 26, 2013, the New York Court of Appeals made two important pronouncements about tip pooling. To summarize, the Court said:

(1) Employees who have some managerial responsiblity may share in a tip pool; and

(2) An employer may exclude some employees from a tip pool, even if those employees are entitled to tips under the New York Labor Law.

The Court made these rules in two cases that were heard together, Barenboim v. Starbucks Corporation, and Winans v. Starbucks Corporation.

According to the Court, Starbucks employees fall into four general levels. From lowest to highest, those are: baristas, shift supervisors, assistant store managers, and store managers. Baristas are the front-line, entry-level employees who take orders and prepare coffee, tea and food orders. Shift supervisors, like baristas, are primarily responsible for serving food and beverages, but they also supervise the baristas, set their schedules, and give them feedback on their work. The next level up is an assistant store manager (ASM). The ASMs serve customers, but they also have more significant managerial responsibilities. They participate in hiring and firing decisions, set the schedules for baristas and shift supervisors, and generally function as the store manager's deputies. Highest on the totem pole are store managers, who have the power to hire and fire, promote and disclipline.

In both the Barenboim case and the Winans case, the question was the same: which of these employees must be included in the tip pool?

In Barenboim, the plaintiff was a barista who said that only baristas should be in the tip pool. According to this plaintiff, Starbucks' policy of including shift supervisors in the tip pool was unlawful.

The plaintiff in Winans took a different angle. That plaintiff was an ASM and claimed that Starbucks' exclusion of ASMs from the tip pool was unlawful.

So, Starbucks was being sued from both sides: a low-ranking employee who claimed that only the lowest-ranking employees (baristas) should receive tips on the one hand, and on the other hand a high-ranking employee who claimed that tips should be shared higher in the ranks.

Now that we have the facts, here's a bit of law to explain how these cases came about. Under New York Labor Law Section 196-d, an employer cannot keep any portion of its employees' tips: the employer must pay out 100% of all tips. Labor Law Section 196-d also prohibits an "agent" of an employer from keeping tips. So, the question in both Barenboim and Winans was: who is an "agent" of the employer and thus prohibited from sharing in a tip pool?

The answer to that question, the Court said, depends on how much supervisory authority an employee has, and also depends on how much "personal service" the employee provides to patrons. The Court's answer to this question leaves a lot of wiggle room: an employee whose personal service to patrons is a "principal or regular part of his or her duties" may participate in a tip pool. But, if the employee has "meaningful authority or control over subordinates," the employee can not participate in a tip pool.

The Court said that "meaningful authority" might include the authority to discipline subordinates, assist in performance evaluations, assist in hiring or firing, or set other employees' schedules.

The Court did not say whether the plaintiff in either case was allowed to participate in the tip pool. That question is left for the lower courts to decide.

After answering the question of who can participate in a tip pool, the Court moved on to the next question: can an employer exclude a tip-eligible employee from a tip pool? The answer was a bit simpler on this one: yes, with limits. For instance, an employer can't give all of the tips to only the highest-ranking, eligible employee.

To read the full opinion, click here.

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