Employment -New York Court Of Appeals Discusses The Employees Who May/May Not Share Tips In A Restaurant

In Barenboim v Starbucks Corp., 2013 NY Slip Op 04754 (NY Court of Appeals 2013), the NY Court of Appeals was asked by the U.S. Second Circuit Court of Appeals to answer two questions regarding the legality of Starbucks s tip-splitting policy under NYS Labor Law § 196-d.

The facts of the case are as follows. In each of its stores, Starbucks employs four categories of employees: baristas, shift supervisors, assistant store managers and store managers. Baristas are the lowest rung and work on a part-time, hourly basis. Shift supervisors are the next lowest rung, work on a part-time, hourly basis and have some supervisory responsibilities over the baristas. Assistant store managers represent the third rung in the Starbucks hierarchy. They work full-time, are paid on a salary basis, and possess greater managerial and supervisory authority than shift supervisors. Finally, the store managers are the highest ranking employees. They work full-time, are paid on a salary basis, and have the authority to hire and fire employees.

Starbucks maintains a written policy governing the collection, storage and distribution of customer tips. Pursuant to this policy, each Starbucks store places a plexiglass container at the counter where patrons may deposit tips. Once these tip canisters become full, Starbucks requires that they be emptied into a bag and the money is stored in a safe. At the end of each week, the tips are tallied and distributed in cash to two categories of employees, the baristas and shift supervisors, in proportion to the number of hours each such employee worked. Starbucks does not permit its assistant store managers or store managers to share in the weekly distribution of tips. The company’s decision to include shift supervisors in these tip pools was the impetus for the first question, namely, whether such inclusion violates Labor Law § 196-d (“Question 1”). The company’s exclusion of assistant store managers created the second question, namely, whether such exclusion violates that provision (“Question 2”).

In analyzing the case, the Court noted that Labor Law § 196-d states in relevant part: “No employer or his agent or an officer or agent of any corporation, or any other person shall demand or accept, directly or indirectly, any part of the gratuities, received by an employee, or retain any part of a gratuity or of any charge purported to be a gratuity for an employee. . . . Nothing in this subdivision shall be construed as affecting the . . . sharing of tips by a waiter with a busboy or similar employee.”

As to Question 1, the Court said that an employee whose personal service to patrons is a principal or regular part of his or her duties may participate in an employer-mandated tip allocation arrangement under Labor Law § 196-d, even if that employee possesses limited supervisory responsibilities. But an employee granted meaningful authority or control over subordinates can no longer be considered similar to waiters and busboys within the meaning of section 196-d and, consequently, is not eligible to participate in a tip pool. The Court left it to the federal courts-where the litigation pertaining to Question 1 currently resides- to apply these principles to the specific facts of the case. As to Question 2, the Court concluded, without much additional elaboration, that Starbucks’ decision to exclude assistant store managers from the tip pool is not contrary to Labor Law § 196-d. It indicated that, with some limitation (not applicable here), employees-even if eligible- can be excluded from the tip pool.