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Second Circuit Douses Baristas' Claims Of Impermissible Tip Pools at Starbucks

Monday, November 25, 2013
By Anna Kwidzinski

Nov. 22 --Starbucks Corp.'s policy of permitting shift supervisors to share in tip pools does not violate New York labor law because they spend a majority of their time servicing customers and have no meaningful authority over baristas, the U.S. Court of Appeals for the Second Circuit held Nov. 21 (Barenboim v. Starbucks Corp., 2013 BL 325303, 2d Cir., No. 10-4912, unpublished opinion 11/21/13).

Bringing an end to more than five years of litigation, the appeals court affirmed a December 2009 decision of the U.S. District Court for the Southern District of New York granting summary judgment to Starbucks on state law claims by former baristas Jeana Barenboim and Jose Ortiz suing on behalf of themselves and other similarly situated workers.

The Second Circuit opinion came about five months after the New York Court of Appeals answered two certified questions posed by the federal appeals court. Adopting the “meaningful authority” standard, New York's highest court concluded 5-2 that Section 196-d of the New York Labor Law does not automatically preclude Starbucks shift supervisors from sharing in tip pools solely because they perform limited supervisory responsibilities (Barenboim v. Starbucks Corp., 995 N.E.2d 153, 20 WH Cases2d 1567 (N.Y. 2013); .

Given this interpretation, the Second Circuit decided that “the limited nature of these supervisory duties, considered together with the shift supervisors' 'principal' responsibilities to provide 'personal service to patrons,' cannot admit a finding of the 'meaningful or significant authority or control over subordinates' contemplated by § 196-d.”

Judges Ralph K. Winter, Reena Raggi and Debra A. Livingston joined in the unpublished summary order.

Shift Supervisors Lack 'Broad Managerial Authority.'
In their April 2008 amended complaint, the baristas alleged that the NYLL prohibits Starbucks from allowing shift supervisors to share in tip pools at individual stores because the managers should be considered the company's “agents,” and therefore ineligible for tip-sharing.

The baristas relied on Section 196-d, which states that “[n]o 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.”

But the district court ruled that the coffeehouse chain's corporate policy is not contrary to New York law, as shift supervisors lack sufficiently “broad managerial authority or power to control employees” (In re Starbucks Employee Gratuity Litig., 264 F.R.D. 67, 2009 BL 269534 (S.D.N.Y. 2009); .

The baristas appealed in December 2010.

State Court Draws Line at Meaningful Authority
In October 2012, the Second Circuit certified two questions to the state's highest court about the correct interpretation of Section 196-d: “What factors determine whether an employee is an 'agent' of his employer for purposes of N.Y. Labor Law § 196-d and, thus, ineligible to receive distributions from an employer-mandated tip pool?”

In its June 26 ruling, the state court answered that employer-required tip-sharing arrangements should be restricted to employees who “are ordinarily engaged in personal customer service.”

As a result, even workers with limited supervisory duties may be eligible to participate in tip-splitting compensation structures if “personal service to patrons is a principal or regular part of his or her duties,” the New York court said.

Acknowledging that “there comes a point at which the degree of managerial responsibility becomes so substantial that the individual can no longer fairly be characterized as an employee similar to general wait staff,” the state court drew the line at “meaningful or significant authority or control over subordinates.”

Supervisors, Baristas Have Same Primary Duties
The Second Circuit found no dispute that shift supervisors devote a majority of their time to the same tasks as baristas and are responsible primarily for serving customers.

The federal appeals court also found that shift supervisors perform some managerial duties, including “assigning baristas to particular positions during their shifts” and “providing feedback to baristas about their performance.”

But the Second Circuit ruled that “these supervisory responsibilities are limited.”

The court rejected the baristas' contention that even though shift supervisors cannot hire or fire employees, they should nonetheless be considered tip-ineligible managers because they verbally discipline and coach baristas, report baristas' performance to managers, and coordinate baristas' schedules.

“[W]hile shift supervisors may be able to coach baristas, they cannot formally discipline them,” the court wrote.

“Moreover, shift supervisors have no input into the creation of the work schedule; they may only designate break times during a scheduled shift or send a barista home from a shift if he or she is not needed,” the Second Circuit said. “And, although they supervise baristas, shift supervisors' primary job functions are the same as baristas.”

Shannon Liss-Riordan of Lichten & Liss-Riordan in Boston and Daniel M. Kirschenbaum of Joseph, Herzfeld, Hester & Kirschenbaum in New York represented Barenboim. Akin Gump Strauss Hauer & Feld attorneys Daniel L. Nash, Nathan J. Oleson and Kelly M. Scindian in Washington, Samidh Guha in New York, and Rex S. Heinke, Gregory W. Knopp and Katharine J. Galston in Los Angeles represented Starbucks.

To contact the reporter on this story: Anna Kwidzinski in Washington at akwidzinski@bna.com

To contact the editor responsible for this story: Susan J. McGolrick at smcgolrick@bna.com


Text of the opinion is available at http://www.bloomberglaw.com/public/document/In_Re_Starbucks_Employee_Gratu_Docket_No_1004912_2d_Cir_Dec_03_20.

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