Tip Pools and Triple Mochas




As you may have read, last week the California Supreme Court over-turned a lower court’s decision thereby reversing an $106 million dollar judgment that had favored a class of employees who had argued that Starbucks Corporation’s tip sharing policy was unlawful under California law*.  You may be wondering how the court’s decision in Chau v. Starbucks Corporation  (Case No. D053491, filed 6/2/2009) now affects your right as a California employer to mandate sharing of tips.

Well, in addition to the Starbucks case, there is another 2009 “tipping” case, Budrow v. Dave & Buster’s of California, Inc.,171 Cal. App. 4th 875 (2009) in which the court actually expanded the rights of California employers to manage and direct tip pools.   Putting together the holdings of both cases, here is the current status of tip pooling laws in California. 

Rule No. 1.        

An employer may mandate that tips given directly to a server (in cash or by credit card) be shared amongst all employees in the chain of service to the customer, including busboys, bartenders and dishwashers.    This is in recognition that a patron’s experience is influenced by all of the employees who contribute to the service of the patron, even if they do not come to the table.  The tip sharing formula does not have to be based on the actual tips received, but may be based on the server’s gross sales.

Rule No. 2

An employer may not mandate that a portion of a tip given directly to a server be shared with an “agent” of the employer.  “Agent” means every person other than the employer having the authority to hire or discharge any employee or supervise, direct, or control the acts of employees.  

Rule No. 3

A supervisor may keep any tip given directly to the supervisor.

Rule No.  4  (There is no rule number 4.   The Starbucks case was not actually a “tip pooling” case, but a “tip apportionment” case.)  So, here is the tip apportionment rule:

A tip placed in a community tip jar may be allocated amongst all persons that contributed to the service of the customer, including an agent, so long as the allocation is designed to redistribute the tips amongst such employees and agents in proportion to their service to the customer.   An allocation method based on hours worked is reasonable.  In other words, at the end of the day, the agents and employees all get their fair share of the tips based on the hours worked. 


*Labor Code Section 351 reads in full:  "No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against and as a part of the wages due the employee from the employer.  Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for. An employer that permits patrons to pay gratuities by credit card shall pay the employees the full amount of the gratuity that the patron indicated on the credit card slip, without any deductions for any credit card payment processing fees or costs that may be charged to the employer by the credit card company.  Payment of gratuities made by patrons using credit cards shall be made to the employees not later than the next regular payday following the date the patron authorized the credit card payment."