I don’t want to get in the habit of commenting on other states’ employment law positions but this case carries special weight. It may inadvertently affect the whole country because the case is before the federal Second Circuit Court of Appeals. This case deals with tip pools among tipped employees and non-regularly tipped employees. It also affects how management employees and other employees of the restaurant can share in those tips as part of their wages. As an employment lawyer, issues with tips and tip pooling is a common problem in wage and overtime pay claims. Employers often see the tips as an opportunity to share the employee’s wealth in violation of the FLSA. If you believe your employer improperly shared in a tip pool then you should contact employment lawyers right away.
Supervisors sharing in tip pools
Some backstory: Starbucks has a tiered chain of command in its stores with baristas performing most of the service roles at the bottom, then shift supervisors who perform the same job as baristas 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 at the register. Those tips are pooled at the end of shifts and divided among the baristas and shift supervisors. Baristas filed a class action claiming 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 Second Circuit certified the issue to the state’s highest civil court for an opinion on state law. (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. It held the shift supervisors did not. The court reasoned that the shift supervisors mostly performed the same duties as the baristas.
Under the federal Fair Labor Standards Act, employers may establish a policy pooling tips among certain employees. Commonly this allows tip pooling in restaurants among wait staff, bartenders, barbacks, busboys and hosts. It excludes back of house employees and management. (Texas law follows the same standard as the FLSA.) In a tip pool employees receiving tips pool some or all tips received and then split them among eligible employees. Unpaid wage lawyers help clients in Texas and other parts of the country recover for improper tip pooling.
FLSA rules for tip pools
The resulting share of the tip pool act as a credit against the employee’s minimum wage like any other tips. The more employees included the less the employer pays in wages because the tips offset some of the employer’s wages. Tipped employees can receive the tip credit, lowering minimum wage from the employer to $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. The fewer sharing in the pool the larger each employee’s share of the pool. (Why the baristas 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. It doesn’t make sense under federal law.
Starbucks takes the position that shift supervisors lack managerial control–a position adopted by the New York court. This directly opposes Starbuck’s position several years ago. It used to pay shift supervisors as salaried employees because they met the managerial salary exemption to overtime pay. Starbucks lost those cases and had to pay the shift supervisors missed overtime pay. So Starbucks made them hourly employees. Now Starbucks reversed its position and 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. Just because an employee is not so managerial that he or she would meet the salary exemption does not mean that employee would necessarily be so un-managerial that he or she should receive part of 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.
Texas tip pooling laws
In Texas our labor code tracks federal law. 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. Employment lawyers in Texas are not affected by the laws of other states but we do argue claims under federal law.
Starbucks should not get 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. So few stores need three levels of management. 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 treats the shift supervisor position as a promotion then it should not get the benefit of tip pooling. Instead, Starbucks should decide whether it wants those employees to be tipped or 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 shift supervisors since it couldn’t deprive them of overtime pay. Unfortunately, these situations are too common for employees. If you believe you work under a similar situation then you should contact Texas employment lawyers to discuss whether your employer’s conduct is outside the bounds of the FLSA.