As discussed in Part One of the Gratuity Law Series, California’s Labor Code §351 provides that “no employer or agent shall collect, take, or receive any gratuity” if the patron intended for the gratuity to be given to an employee. Though this statement may appear simplistic on its face, courts have frequently been asked to decide who is an “employer or agent” for the purposes of this law.
A mandatory tip-pooling system is an employer imposed arrangement in which all gratuities are divided among a set of employees. In the 2009 case of Chau v. Starbucks, the California Court of Appeals made a landmark decision in determining who can be included in tip-sharing systems. The case was a class action lawsuit led by a former Starbucks employee challenging the right of “shift supervisors” to be included in a tip-sharing system. A shift supervisor performed all of the same tasks as a barista, worked on the same part-time hourly pay, and was directly involved in customer service. The primary difference from a barista was the additional responsibilities. These included supervising and coordinating employees within the store, opening and closing the store, and depositing money into the safe. The Court also noted that customers were served by a team rather than on a one-to-one basis.
In ruling on the case, the Court stated that through §351 and subsequent provisions, the Legislature sought to prevent fraud against the public and ensure that employees would get the full benefit of gratuities which patrons intend solely for the employees who served them.
The Court concluded that §351 does not prevent employers or agents from receiving tips which the customer intended for them to receive. The Court clarified that §351 has nothing to with whether an employer or its agent can receive a gratuity, but rather that the employer or agent cannot make a claim to the property (tip) which was given to an employee. The Court ultimately found that the Starbucks tip-pooling system did not violate the law because:
- Customers would tend to believe a community tip-box would be shared evenly among all employees who were part of the serving team;
- The shift supervisors spent ninety to ninety-five percent of their time doing the same work as baristas, making them indistinguishable from a barista to the ordinary consumer;
- The plaintiffs did not argue against the division of gratuities entirely; and
- Managers and assistant managers, who did not participate directly in customer service, were not included in the tip-pooling system.
The Court determined that customers likely believed they were tipping both shift supervisors and baristas by contributing to a community tip box. Therefore, Starbucks’s division methodology did not violate §351. The degree of customer service involved in an employer’s or agent’s job is indicative of whether they will be allowed to receive gratuities under §351.
Another important California Court of Appeals case on this issue is Grodensky v. Artichoke Joe’s Casino (2009). This case involved tip-pooling, which included floor managers at a casino. The Court ruled tip-pooling can be appropriate where the agent has no authority to hire and fire people. The floor managers main priority was to aid in amicable gambling rather than acting as an authority. This was designated to be a service position in the same way as a chip seller or a card dealer. Therefore, the floor managers were permitted to participate in the tip pool.
Taking these two decisions together, the fundamental question in California in determining whether an employee is barred from participating in a tip pool as an employer or agent is whether the customer would intend to be tipping that person. This question even applies to back of the house employees who serve customers in a more indirect fashion. Instead only employees who the customer could not have thought to be tipping should be prevented from being a part of a tip-pooling system. However, as noted in Part 1, in California back of the house employees who are not in direct contact with customers are presently barred from participation in an employer mandated tip pool.