New York's Top Court Rules Who Can—And Can't—Share Starbucks Tips

Starbucks (NASDAQ:SBUX) baristas must share their tips with shift supervisors, but assistant managers cannot share, ruled New York's Court Of Appeals. The decision has implications far beyond Starbucks because the court crafted guidelines to determine who is and isn't tip-eligible. (The case has full legal authority through New York state, of course, but it's likely to be felt elsewhere as New York's top court is often cited by other jurisdictions.)

The case involved three levels of Starbucks employees: baristas, shift supervisors and assistant store managers. Starbucks baristas are part-time workers who serve customers and share tips weekly based on hours worked. They can be promoted after six months to shift supervisors. Shift supervisors are also part-time wage workers who mostly serve customers, but also assign baristas, provide input on their performance, and direct the flow of customers. Assistant managers are full-time, get some benefits such as paid holidays and vacations, and are eligible for bonuses.

The court's rationale involved the nature of the duties each performs. One of the baristas who sued "asserts that any supervisory responsibility, however slight, renders an employee (such as a shift supervisor) an agent and, therefore, ineligible to participate in a tip pool" whereas an assistant manager argued "the opposite position, contending that only employees with 'full' managerial authority — i.e., the ability to hire and fire subordinates — should be viewed as agents and, as a result, assistant store managers remain eligible for tip distribution."

The court added that Starbucks itself "relies on the final sentence of the statute in claiming that shift supervisors are sufficiently similar to waiters, busboys and the like, and should be viewed as eligible to share in tips, while assistant store managers, by virtue of their significant managerial responsibility, stand on substantially different footing from baristas and shift supervisors, making them tip-pool ineligible. The court ultimately agreed fully with Starbucks' interpretation of the law.

"We believe 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 within the meaning of Labor Law § 196-d. We conclude that the line should be drawn at meaningful or significant authority or control over subordinates," the court said in its decision. "Meaningful authority might include the ability to discipline subordinates, assist in performance evaluations or participate in the process of hiring or terminating employees, as well as having input in the creation of employee work schedules, thereby directly influencing the number and timing of hours worked by staff as well as their compensation. In other words, the power to hire and fire is not the exclusive test. Meaningful authority, not final authority, should be the standard."

Those are very specific and helpful guidelines for any retailer that has a tip-sharing mechanism.

For more:
- See this Associated Press story

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