I don’t want to get in the habit of commenting on other states’ employment law positions but this case carries special weight and may inadvertently affect the whole country because the case is before the federal Second Circuit Court of Appeals.
Some backstory: Starbucks has a tiered chain of command in its stores with barristas performing most of the service roles at the bottom, then shift supervisors who perform the same job as barristas but also have authority to assign shift duties and provide feedback. Above them are the assistant managers and managers. If you have ever been to a Starbucks then you know there is a tip jar in front of the register. Those tips are pooled at the end of shifts and divided among the barristas and shift supervisors. New York barrista Jeana Barenboim filed a class action suit claiming that the inclusion of shift supervisors in the tip pool violated New York’s labor code. Local Starbucks store managers then cross-filed to include assistant managers in the tip pool. Insanity ensues.
The decision: The federal Second Circuit Court of Appeals certified the issue to New York’s highest civil court for an advisory opinion about the state law claims. (New York Times story and the advisory opinion) The New York Court of Appeals focused on managerial control as a key factor in the decision. The court held that the assistant managers possessed too much managerial control to share in the tip pool but the shift supervisors did not. The court reasoned that the shift supervisors mostly performed the same duties as the barristas so they should not be excluded from the tip pool.
Tip pooling: Under the federal Fair Labor Standards Act, employers may allow employees to obtain tips but those tips may be pooled with certain other employees. Commonly this allows tips to be pooled in restaurants among the wait staff, bartenders, barbacks, busboys and other employees primarily involved in customer service but excludes back of house employees and management. (Texas law follows the same standard as the FLSA.) In a tip pool the employees receiving the tips must pool some or all of the tips received and then split them among the eligible employees.
The resulting share of the tip pool can be credited against the employee’s minimum wage like any other tips so the more employees who can be included as tipped employees the less the employer has to pay in wages because the tips offset some of the employer’s wage pay. Tipped employees may also be eligible for the lower minimum wage payment at $2.13. (That’s why Starbucks wanted to include as many employees as possible.) The employees who receive shares of the tip pool want the fewest number of employees included because the fewer share in the pool the larger each employee’s share of the pool can be, so the more money the employee can make per hour. (Why the barristas wanted to exclude assistant managers and shift supervisors.)
Why I think the Second Circuit should not agree: Okay, I can understand why the court reached the position it did under state law although the position should not be followed by the Second Circuit. It doesn’t make sense under federal law.
Starbucks is taking the position that shift supervisors lack managerial control–a position adopted by the New York court–although this directly opposes Starbuck’s position several years ago. Starbucks used to pay its shift supervisors as salaried employees under the theory that they met the managerial salary exemption to overtime pay. Starbucks lost those cases and had to pay the shift supervisors missed overtime pay because they were not overtime exempt. So Starbucks made them hourly employees and now Starbucks has reversed its position and now asserts they are not managerial employees. I can appreciate that Starbucks is trying to take their loss on the salary issue and spin it in their favor but it’s really more of the same of Starbucks trying to underpay its employees. It should be pointed out that just because an employee is not so managerial that he or she would meet the salary exemption it does not mean that employee would necessarily be so un-managerial to be eligible for the tip pool. The legal standards for salaried, exempt employees is not entirely the same as the standard for tip pooling.
The court ruled that under New York law there is no clear test of how much managerial control is necessary to exclude a supervisory employee from tip pooling but there has to be more than slight supervisory duties involved when the rest of the employee’s duties are service-related. The New York court pointed out that restaurant captains (a term I was unfamiliar with until today), who are sort of shift supervisors at restaurants, are tip eligible under New York law because they spend most of their time performing customer service even though they have a few supervisory duties. Other states have more specific labor codes that would exclude these employees but the New York court took the less specific language of its own labor code to throw open the door to a wider pool of employees to share in the tip pool.
In Texas our labor code tracks federal law and under federal law the FLSA determines who can be included in a tip pool based on what is known as the economic realities test. Under this test, Starbucks shift supervisors probably had enough managerial authority to be excluded from the tip pool–and in my opinion definitely have enough authority to be excluded. Certainly the shift supervisors lacked substantial managerial authority but their ability to schedule duties and provide feedback sure sounds like the type of managerial authority that would exclude somebody from receiving tips.
Starbucks should not be allowed to play both sides of its policy to the detriment of its employees. Starbucks appears to use the shift supervisor position to give an illusion of opportunity for promotion in the store rather than because so few people need three levels of management in each store. The position has minimal authority because it isn’t really much of a promotion but it does have duties specifically identified in the economic realities test as those considered managerial. If Starbucks is going to use the shift supervisor position as a promotion above the front line employees then it should not get the benefit of tip pooling. Instead, Starbucks should decide whether it wants those employees to be tipped or be treated as part of the managerial chain. It isn’t fair to the barristas or the shift supervisors to get caught in the middle. This is just a different way for Starbucks to abuse these shift supervisor employees since it couldn’t deprive them of overtime pay.
Why this case matters: In Texas, this case could have an effect on Texas tipped employees in similar work environments by setting precedent that these shift supervisors are eligible for the tip pool, allowing employers in all the other states to follow the Second Circuit’s position and increase the number of employees stuffed into the tip pool. A win by Starbucks here would undoubtedly result in enforcing a similar policy on tip pooling in all the other states and forcing barristas to continue to fight Starbucks’ greedy employment practices one state at a time.