Starbucks: Robbing from Peter Barista to Pay Paul Supervisor

Bryan Schwartz Law submitted the following amicus letter to the California Supreme Court, on behalf of the California Employment Lawyers Association, asking the Court to grant review in a case of statewide significance to service employees, called Chau v. Starbucks. The case involves whether employers can steal tips, left by customers in tip boxes or tip cups at the register, to allocate a portion of them toward subsidizing otherwise subpar wages of supervisors. Before the Chau decision by the Court of Appeal, it was clear, from the California Labor Code and Courts of Appeal interpreting it, that employers could not pool tips between the employer's agents (aka supervisors) and non-agents (aka, in this case, baristas).

In case you're wondering, "How much do those little tips in the tip box/cup mean, anyhow?" --After a full trial on the merits, the lower court in Chau awarded the Starbucks baristas $86 million in restitution, plus interest and attorneys' fees. Hopefully, the Supreme Court will fix the injustice created by the Chau Court of Appeal and reinstate the employees' restitution.

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The Honorable Ronald M. George, Chief Justice
and Associate Justices
California Supreme Court
350 McAllister Street
San Francisco, CA 94102

Re: Amicus Curiae Letter (Rule 8.500(g)); Supreme Court Case No. S174601
Chau, et al. v. Starbucks Corporation (June 2, 2009) 174 Cal.App.4th 688, 94
Cal.Rptr.3d 593, Fourth Appellate District, Division One, Case No. D053491,
Reversing San Diego Sup. Ct. Case No. GIC836925

Dear Chief Justice and Associate Justices:

This is a letter under Rule 8.500(g) in support of the petition for review by the Plaintiffs in Supreme Court Case No. S174601, Chau, et al. v. Starbucks Corporation (July 2, 2009) 174 Cal.App.4th 688, 94 Cal.Rptr.3d 593, Fourth Appellate District, Division One, Case No. D053491 (hereafter, Chau). This letter, on behalf of the California Employment Lawyers Association (CELA), supports the Plaintiffs’ request for review, to have this Court clearly hold that employers cannot require non-supervisory employees to share tips with supervisory employees who are agents of the employer. The Court of Appeal’s decision in Chau contradicts California Labor Code §§350(a) and (d) and §351, and also contradicts the Court of Appeal decisions in Jameson v. Five Feet Restaurant (2003) 107 Cal.App.4th 138, 131 Cal.Rptr.2d 771, and Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, 268 Cal.Rptr. 647, which construe Labor Code §351 to establish a bright-line rule prohibiting tip-pooling with an employer’s agents. Thus, Chau throws into confusion a previously-settled rule regarding the allowable reaches of a tip pool, potentially affecting the income of millions of California service industry workers.

This Court has never directly addressed the proper scope of tip pooling, even though it has discussed Cal. Lab. Code §351 (see Industrial Welfare Com. v. Superior Court (1980) 27 Cal.3d 690, 166 Cal.Rptr. 331, and Henning v. Industrial Welfare Com. (1988) 46 Cal.3d 1262, 252 Cal.Rptr. 278), in the context of applying tip credits against the minimum wage. Currently, the Court has before it two cases regarding whether §351 permits a private right of action.[1] Supreme Court review in the instant case would complement the latter.

California Courts of Appeal have long followed Leighton, 219 Cal.App.3d 1062 (decided closely on the heels of Henning), which ruled that employer-mandated tip pooling between servers and bussers at a restaurant is permitted under §351. Under §351, however, tip income left by patrons in a tip container for all servers may not be used by an employer to subsidize the wages of its agents, whether those agents also provide customer service or not. See generally Etheridge v. Reins Intern. California, Inc. (2009) 172 Cal.App.4th 908, 91 Cal.Rptr.3d 816.

I. Interest of Amicus

CELA is a statewide non-profit organization dedicated to protecting workers’ rights. CELA’s member attorneys represent employees in all types of employment cases in state and federal courts and before administrative agencies, including employment discrimination, wrongful discharge, wage and hour, and unemployment insurance matters. In each of these substantive areas of law, CELA’s members and their clients challenge employers who fail to adhere to California and federal employment laws. CELA frequently appears as amicus curiae in matters before this Court, including, e.g., recent appearances in Murphy v. Kenneth Cole Productions, Inc. (2007) 40 Cal.4th 1094, 56 Cal.Rptr.3d 880, Gentry v. Superior Court (2007) 42 Cal.4th 443, 64 Cal.Rptr.3d 773, and Edwards v. Arthur Andersen LLP (2008) 44 Cal.4th 937, 81 Cal.Rptr.3d 282.

CELA’s members have an abiding interest in the scope of permissible tip pools, directly at issue in this case. In particular, CELA seeks to ensure that the concept of tip pooling is not abused so as to undermine non-agents’ gratuities, guaranteed to be separate from agents’ compensation by Labor Code §§351 and 350(d), and that the State’s wage and hour laws are “liberally construed with an eye to promoting [worker] protection,” as this Court required in Henning, 42 Cal.3rd at 1269 (citing Industrial Welfare Com’n, 27 Cal.3d at 700-703). CELA maintains that this Court should not permit an interpretation, like that applied in Chau, which results or could result in tips which should be received by millions of California non-supervisory workers being misappropriated to defray employers’ payroll costs with respect to their agents.

II. Review is Warranted

A. The Court Should Resolve Chau’s Split With Jameson, Which Held that Employers May Not Pool Tips Between Agents and Non-Agents.

In Jameson, 107 Cal.App.4th 138 at 141, the Court of Appeal concluded that a tip pool benefitting "floor managers" was illegal because floor managers had sufficient supervisory duties to be considered the employer's agents rather than employees. See also Etheridge, 172 Cal.App.4th at 921 n.17 (citing Jameson). Here as in Jameson, substantial evidence supports the trial court’s conclusion after a full trial on the merits that Starbucks’ shift supervisors are “agents,” with whom, according to statute, non-agents like Plaintiffs may not be forced to share tips. See Petition for Review at pp. 16-18.

Supreme Court review is appropriate because the Court of Appeal’s application of the law permits what Jameson expressly forbids – tip pooling with supervisory employees who happen also to perform customer service functions. Jameson, 107 Cal.App.4th at 144-145.[2] In Chau, the Court of Appeal repeatedly emphasizes that the shift supervisors, whom the trial court found to be agents – a conclusion which the Court of Appeal did not dispute[3] –should be able to take a portion of the tips from Starbucks’ tip boxes because of the supervisors’ customer service responsibilities.[4]

The Chau court’s attempt to avoid an overt split with Jameson by inventing a new term for Starbucks’ practice – “tip apportionment,” as opposed to “tip pooling” – is at best flimsy, at worst disingenuous. The crux of the Court of Appeal’s distinction is that at Starbucks, the tips are left in a box at the register, rather than on a table or with a server. Chau, 174 Cal.App.4th at 700 (“[T]he legal principles prohibiting an employer from requiring an employee to share his or her personal tip with the employer's agent (‘mandatory tip pooling’) do not logically apply to an employer policy requiring equitable apportionment of the proceeds in a collective tip box (‘tip apportionment’).”). In Jameson, where the employer was taking a portion of the tips left on the table and giving it to its agents, it was apportioning tips in a prohibited manner (one might call it, “tip apportionment”). The essence of Jameson is precisely the opposite of what Chau holds – that an agent, though he or she may do some customer service duties, cannot share in the tips to be distributed to non-agents. Any factual distinction between the cases is immaterial, since in both cases the employer decided who may share customers’ tips and in neither case was the customers’ tipping intent manifest.

The real reason the Court of Appeal splits with Jameson may have more to do with the magnitude of Starbucks’ violation and the considerable restitutionary verdict after trial. Chau, 174 Cal.App.4th at 701, 706 (emphasizing Jameson’s $1,075 verdict and Chau’s $86 million result). But California law should not require restitution in small, individual cases of tip theft, but not when statewide, multi-million dollar violations are established. On the contrary, California’s interest in worker protection (see, e.g., Henning, 42 Cal.3rd at 1269) should be, if anything, more heightened in a case, like Chau, with a statewide impact, involving over 120,000 employees.

The Supreme Court should grant review to resolve Chau’s apparent split with Jameson, and should conclude that Jameson was right that, under Labor Code §351, employers may not pool or “apportion” pooled tips between non-agents and agents.

B. The Supreme Court Should Reject the Court of Appeal’s Presumption of Customers’ Intent in Chau.

Repeatedly, the Court of Appeal emphasizes its presumption that Starbucks's customers intended that their tips be shared among baristas and shift supervisors.[5] However, the Court of Appeal in Leighton, 219 Cal.App.3d 1062, 1069, long ago, properly rejected attempts by courts to presume the intentions of tipping customers where, as here, their intention was not explicit, i.e., where a customer left a tip on a table or in a cup or box. As the Leighton court explained, “[M]uch is made of for whom the gratuity is left, the intention of the patron in leaving it, and the lack of evidence offered by [the employer] in this connection. We dare say that the average diner has little or no idea and does not really care who benefits from the gratuity he leaves, as long as the employer does not pocket it, because he rewards for good service no matter which one of the employees directly servicing the table renders it.” (emph. added) Id. The Leighton court continued to describe the “near impossibility of being able to determine the intent of departed diners in leaving a tip.” Id. Under Leighton, the only bright-line rule as regards tip pooling (or tip apportionment) is that agents of the employer must be excluded.

Until Chau, the Leighton decision’s discussion of the perils of attempting to infer customer intent where tips are left collectively has been followed by every California Court of Appeal to rule in a tip pooling case. See, e.g., Etheridge, 172 Cal.App.4th at 921-922; Budrow v. Dave & Buster's of California, Inc. (2009) 171 Cal.App.4th 875, 880 n.4, 90 Cal.Rptr.3d 239. See also Jameson, 107 Cal.App.4th at 144-145 (same holding). See also depublished cases currently being reviewed by this Court on other grounds, Grodensky, 91 Cal.Rptr.3d at 755, 767-769; Lu, 88 Cal.Rptr.3d at 358.[6] This Court should restore the status quo ante by granting review and overturning Chau, which improperly relied on the appellate court’s interpretations of what it believed Starbucks’s customers’ intention must have been in leaving tips in a box at the register. Chau, 174 Cal.App.4th at 704 (“It is undisputed (and certainly the only reasonable conclusion) that by placing a tip in a collective tip box, the customer understands that this gratuity will be shared by all the service employees-baristas and shift supervisors.”). There was no substantial evidence in the record establishing whether Starbucks’ customers had the intention to tip agents of the employer. See Chau, 174 Cal.App.4th at 706 (citing plaintiffs’ petition for rehearing, stating, “They assert that customer intent was not an issue at trial, and note that neither party presented any testimony from a customer as to the customer's subjective intent in placing a tip in a collective tip box or how the customer intended to allocate a tip for more than one employee.”). As discussed above, even if customers did have an intention to tip agents, applying Labor Code §351 and 350(d), and affirming Jameson, Leighton, and the decisions following them, the Supreme Court should establish unequivocally that the employer was not permitted to pool or apportion or share tips between agents and non-agents.

C. Public Policy Dictates that Employers Should Not Be Permitted to Allocate Pooled Tips Between Agents and Non-Agents.

By blurring the bright-line rule that employers cannot pool, apportion, or share tips between agents and non-agents, and by rejecting the general prescription against inferring customers’ intentions regarding tips, the Court of Appeal in Chau has effectively rendered Labor Code §§350(d) and 351 meaningless and weakened the well-established precedents of Jameson and Leighton. Applying Chau, an employer can now easily force tip sharing between agents and non-agents with impunity, simply by ensuring that tips are placed in a box or cup and “apportioning” them to supplement service-providing supervisors’ wages. As this Court has repeatedly emphasized, California’s employees are entitled to greater protection than this.

The Court of Appeal did not dispute that substantial evidence supported the trial court’s findings that shift supervisors are agents, and plaintiffs’ Petition for Review cites a host of activities performed by supervisors which give them control or direction or supervision over the non-agent baristas, such as opening and closing stores, monitoring time cards, controlling cash, etc. Petition for Review at p. 17 n. 10. It does not require a leap of imagination to realize that shift supervisors can use this control, direction, and supervisory authority to skew the proportion of the tips that they receive, by, among other things, ensuring that they receive more work hours that count toward their allocation of the tips. The Labor Code expressly seeks to avoid this conflict by precluding tip sharing among the employer’s agents and non-agents, and Chau should not be permitted to undermine this clear rule.

In Henning and Industrial Welfare Commission, this Court explained that tips should not be used by employers to avoid paying market wages to non-tipped employees. See also Etheridge, 172 Cal.App.4th 908, discussing Henning and Industrial Welfare Commission (“Even though an employer can no longer use tip sharing to subsidize minimum wages of non-tipped employees, it is possible that an employer could use tip sharing to subsidize market wages of non-tipped employees, resulting in the same evil. Thus, when considering tip pooling, it is important to make certain that the employer is not using the tip pool as a de facto tip credit against market wages.”). Plaintiffs’ and CELA’s interest, and that supported by California’s public policy, is not to reduce the actual wages of shift supervisors – far from it – but rather, to make sure that Starbucks, and not its front-line baristas, bears the burden of paying shift supervisors the competitive wages they deserve.

III. Conclusion

For the foregoing reasons, CELA requests that this Court grant the Plaintiffs’ petition for review.

Thank you for your consideration.


CALIFORNIA EMPLOYMENT LAWYERS’ ASSOCIATION
BRYAN SCHWARTZ LAW
___________________________
Bryan J. Schwartz
180 Grand Avenue, Suite 1550
Oakland, CA 94612
Tel. 510-444-9300
Fax 510-444-9301
Email: Bryan@BryanSchwartzLaw.com
Website: http://www.bryanschwartzlaw.com/

[1] S172237 (Grodensky v. Artichoke Joe's Casino (2009) 91 Cal.Rptr.3d 732, 755, 767-769); S171442 (Lu v. Hawaiian Gardens Casino, Inc. (2009) 88 Cal.Rptr.3d 345, 358).

[2] The Jameson Court of Appeal explained: “Five Feet [the employer] argues that although the floor managers are involved in hiring, discharging, and supervising employees, they also serve patrons and thereby earn a share of the tips. Five Feet contends, therefore, the floor managers do not fall within the definition of agent in section 350. But the definition of agent under section 350 does not include a requirement that an agent's duties exclusively consist of hiring, discharging, or supervising employees. Section 350 does not even require that an agent spend the majority of his or her time performing such functions. Therefore, it is irrelevant that the floor managers at Five Feet perform other duties in addition to the functions described in section 350, subdivision (d)…. Under section 351, tip pooling is only permitted among employees who are neither employers nor agents under section 350.” Id.

[3] The Court of Appeal expressly did not decide this issue, ruling instead as a matter of law that supervisors can share in tips left collectively for customer service employees.

[4] See, e.g., Chau, 174 Cal.App.4th at 703 (“Starbucks's 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.”), 705 (“the vast majority of the time shift supervisors and baristas perform the same jobs….”).

[5] See, e.g., Chau, 174 Cal.App.4th at 703 (“In this way, Starbucks effectuates the customer's intent and does not permit the misappropriation of gratuities intended for a certain employee or employees.”), 704 (“[B]y placing a tip in a collective tip box, the customer understands that this gratuity will be shared by all the service employees—baristas and shift supervisors.”), 706 (“the testimony by baristas and shift supervisors was undisputed that customers leave tips in the collective tip boxes for the service team, which includes both shift supervisors and baristas”).

[6] CELA’s position is that several of these cases go too far in ignoring customers’ intent, even where it is manifest, e.g., where tips are given directly to casino dealers but taken by the employer to share with other non-agents. However, Chau’s position – inferring customers’ intent to share tips with the employer’s agents – is simply unprecedented.