Are You Vulnerable to a Tip-Pooling Claim?
By: JOSEPH M. SOKOLOWSKI & LINDSAY J. ZAMZOW
July 2007
Employers increasingly face litigation under the wage and hour provisions of federal and state law, which include minimum wage, overtime pay, and equal pay requirements. A recent California decision may give plaintiffs’ lawyers yet another wage and hour issue to seize upon: tip-pooling. In March, a California court found in the class action lawsuit, Chou v. Starbucks Corp., that Starbucks’ tip-jar policy violated the state tip-pooling law, under which employers and their agents, including management, cannot take a share of employees’ tips. The problem with the Starbucks policy, according to the court, was that it allocated a share of the tips to shift supervisors. The shift supervisors were hourly employees who handled the cash and store keys in the managers’ absence but who also regularly worked the register and made drinks for customers. Despite their customary presence behind the counter, the court concluded that shift supervisors were actually managers, and should not have been allowed to have any portion of the tips. Starbucks was ordered to pay its employees more than $100 million in restitution for the tips that had gone to shift supervisors. At the time of this writing, Starbucks planned to appeal the decision.
Similar complaints have already been filed in Florida, Massachusetts, Minnesota, and New York. In the wake of the California Starbucks decision, more cases of this nature are likely. With this spate of litigation, employers of tipped employees should be aware of the federal and state laws on tip-pooling.
Under federal law, employers may require tip-pooling by those employees who customarily receive tips, such as restaurant servers, bellhops, and bartenders, with a few exceptions. First, employees cannot be required to share tips with employees who do not regularly receive tips, such as dishwashers and cooks. Second, to prevent evasions of the minimum wage law, only tips over and above the amount used for the tip credit can be pooled. Third, employees can only be asked to pool a customary and reasonable percentage of their tips.
Employers should know, however, that state laws may not mirror federal law and, further, that laws vary widely from state to state. Some states, such as Georgia and Pennsylvania, do not have tip-pooling laws; the laws of other states provide stricter requirements than federal law. In Minnesota, for example, employers cannot require that employees pool their tips, although employees can voluntarily agree to such an arrangement free of employer participation. North Dakota, on the other hand, requires that any tip-pooling arrangements be approved in a vote by 50 percent plus one of all tipped employees.
If you have questions concerning your current tip-pooling practices, the attorneys in Fredrikson & Byron’s Employment and Labor Law Group are available to help you with tip-pooling law compliance.
Takeaway
Employers cannot simply comply with the federal standard and hope to escape liability under tip-pooling laws. Rather, employers should review their policies to make sure that any tip-pooling arrangement complies with the laws of each state in which the employer has employees.