Court upholds Starbucks' tip policy

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Starbucks Corp. baristas must share tips with shift supervisors, while assistant managers can be excluded from gratuity pools, New York's highest court said in answering questions posed by a federal appellate panel.

The world's biggest coffee chain was sued in 2008 in federal court in Manhattan by two former baristas who accused the company of violating state labor law by including shift supervisors in tip pools. A group of assistant managers sued in the same court, saying they were illegally excluded from the pool.

A federal court in Manhattan supported Starbucks in both suits, ruling that shift supervisors can share in tips because they have limited managerial responsibilities while it wasn't obligatory to include assistant store managers in gratuity pools.

The plaintiffs in both cases appealed and a U.S. appellate panel in New York asked the state's highest court in Albany to answer two questions: What factors determine whether an employee is an agent of his employer and ineligible to receive distributions from a tip pool; and does state law permit employers to exclude eligible employees from such pools?

The seven-member Court of Appeals in Albany last week said that, under New York state law, employees whose main duties are serving patrons can participate in tip pools. That would include shift supervisors, whose primary responsibility is to serve food and beverages, and not assistant managers, who participate in hiring or firing workers.

"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 state law, Judge Victoria A. Graffeo wrote, "even if that employee possesses limited supervisory responsibilities. But an employee granted meaningful authority or control over subordinates can longer be considered similar to waiters and busboys."

Starbucks believes customers should have the option to reward employees who provide great service, and the company's tipping policy ensures that workers who directly serve the public share equally in the tips, Jamie Riley, a spokeswoman for the Seattle-based company, said in a phone interview.

Shannon Liss-Riordan, an attorney in Boston who represents the baristas, said in an email that shift supervisors exercise meaningful authority over baristas and that the trial court erroneously applied too stringent of a standard.

Two judges dissented from today's majority ruling. Judge Robert S. Smith said New York state law doesn't preclude employees with supervisory authority from sharing in tip pools and that employers are allowed to exclude certain types of workers from such arrangements.

He cited a California appeals court decision from June 2009 that reversed a lower-court ruling ordering Starbucks to pay $86 million in restitution for allowing shift supervisors to share in servers' tips.

Judge Jenny Rivera agreed with the majority that employees who exercise authority or control over subordinates are agents of an employer, while saying that the court doesn't need to determine whether companies can legally exclude some workers from pools if those workers are determined to be agents, such as assistant managers.

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