Starbucks Wins Legal Battle as Court Throws Out $86M Tip Ruling

June 2, 2009 ( - Starbucks, the popular national coffee shop chain, walked away with a legal victory Tuesday when a California appellate court threw out a lower court decision requiring it to pay $86 million plus interest because of its policy on dividing up customer tips between servers and shift supervisors.

The California 4 th  District Court of Appeal asserted that San Diego Superior Court Judge Patricia Cowett misinterpreted state law regulating handling of tips as well as relied on inapplicable case law in her  March 2008 decision against the Seattle-based Starbucks Corporation (see CA Judge Awards Starbucks Servers $86M in Tip Pooling Case) .

Starbucks mandates that the only employees eligible to share in the weekly collective tips are “all baristas and shift supervisors who worked that week” and that store managers and assistant managers are prohibited from receiving any portion of the funds.

The appellate judges ruled that the coffee retailer’s shift supervisors are not actually bosses or “agents” under state law and are not automatically disqualified from taking a pro-rata share of tips left in a communal jar for everyone serving a particular customer. Starbucks customers can designate a particular server to receive a tip and that person does not have to share the money, the appellate court pointed out.

The employer argued the shift supervisors could affect management policy, but had no authority to enforce company rules and weren’t considered part of the management team.

“By leaving a tip in a collective tip box, a customer would necessarily understand the tip will be shared among the employees who provide the service,” the appellate court wrote. “The obvious purpose of a tip box is for the customer to leave a tip to be shared among the service employees.”

The appellate judges pointed out that state law requires employers to give tip money to employees for whom it was left regardless of their management status.

In October 2004, plaintiff Jou Chau, a college student and former barista, brought a class action complaint against Starbucks alleging that its policy permitting shift supervisors to share in the collective tips violated state law. After hearing evidence, Cowett ruled that the class of Starbucks servers were entitled to restitution of all tips paid to shift supervisors from the collective tip boxes during the period governed by the suit - which Cowett found was $86,687,927- plus 7% interest (see CA Judge Awards Starbucks Servers $86M in Tip Pooling Case ).

But the appellate judges said Starbucks's system worked the way it was supposed to work.

"The undisputed evidence shows that no barista was required to give up any part of a tip left for the barista. Rather, Starbucks's policy ensured the collective tips were equitably distributed to those who earned them," the appellate judges wrote. "It is undisputed here that the tipping public intended to collectively tip both the baristas and the shift supervisors—for their work as a 'team.' Requiring these collective tips to be given solely to baristas would mislead the public."

The appellate ruling is available here .