The New York Court of Appeals considered two issues certified by the Second Circuit regarding the legality of the Starbucks Corporation’s (“Starbucks”) tip-splitting policy. In a putative class action lawsuit filed in 2008 in the Southern District of New York, the plaintiffs alleged that it was unlawful for shift supervisors to participate in Starbucks’s tip-splitting policy because those tips belonged exclusively to Starbucks baristas (rather than to both baristas and shift supervisors). In a separate complaint filed in the Southern District of New York, a group of Starbucks assistant store managers likewise asserted that they were eligible to participate in the tip pool and that baristas, shift supervisors, and assistant store managers should all be eligible for tip pool disbursements.
Recognizing that questions of New York law remained unresolved, the Second Circuit certified the following two issues to the New York Court of Appeals: (1) What factors are used to determine whether an employee is an agent (considering whether the employee’s managerial role is so substantial that the employee would be ineligible to share in the tip pool); and (2) does New York labor law allow an employer to exclude an employee from receiving distributions from the tip pool even if that employee is statutorily eligible to participate in tip-splitting?
The Court first focused on the term “agent” as stated in section 196-d of New York’s labor law statute and the degree to which the responsibilities of shift supervisors and assistant store managers were sufficiently supervisory. Considering the New York State Department of Labor’s (“DOL”) amicus brief, the Court concluded that tip-pool eligibility extended to employees (1) exercising principal or regular service to patrons, and (2) having limited supervisory responsibilities.
Second, the Court assessed whether Starbucks had the right to exclude an employee, who would otherwise be statutorily eligible to share in the tip pool, from participating in a company’s tip-splitting arrangement. The Court held that Starbucks was not required to include all those employees not statutorily barred from sharing in the tip pool. In addition, the Court recognized that there could be an outer statutory limit to an employer’s ability to exclude a statutorily eligible employee from sharing in the tip pool. In this case, however, the Court concluded that Starbucks’s policy of excluding assistant store managers from sharing in the company’s tip-splitting arrangement was lawful under section 196-d.
In his dissent, Judge Smith suggested that section 196-d did not apply because the statute was intended to prevent deceptive practices involving an employer keeping money from an employee, not the common tip pool addressed in the present case. Judge Rivera, in her dissent, expressed concern that the majority left too much unsaid regarding the outer limits of an employer’s right to exclude statutorily eligible employees from sharing in the tip pool. Judge Rivera suggested that the majority should have declined to answer the second certified question because an employer’s discretionary authority to exclude certain employees from sharing in the tip pool is not germane to the court’s conclusion that Starbucks lawfully excluded assistant store managers from participating in the company’s tip-sharing scheme.
2013 WL 3197602, N.Y. Slip Op. 04754 (2013)