On June 2, 2009, a California appellate court upheld Starbucks’ mandatory tip-sharing policy, saying that Starbucks does not have to pay $100 million in additional wages to its baristas.

Reversing a trial court judgment, the Court of Appeal held that Starbuck’s policy requiring that tips be divided between baristas and “shift supervisors” who work along side them is permissible under California Labor Code Section 351.

This decision is good news for California employers that allocate tips left by customers at a common collection point to reward team service.

In Chau v. Starbucks, the trial court had previously ruled that that Starbucks’ policy of mandatory tip sharing violated Section 351 because it required baristas to share tips with their shift supervisors, who occasionally directed other employees and, according to the trial court, were “agents” of Starbucks and not permitted to receive tips under California Labor Code section 351.

Section 351 states that an employer or its agent cannot take or receive any part of a gratuity, and that gratuities are the sole property of the employee or employees to whom they were paid, left or given.

The Court of Appeal reversed the Chau decision, finding that shift supervisors, like baristas, primarily served customers, had minimal supervisory duties and were indistinguishable by customers from other baristas, and had no authority to hire, fire, review performance or discipline other employees.

Since both baristas and shift supervisors served customers as a “team,” the court found that tips, placed in collection boxes at cash registers, reasonably belonged to all of them. The court also found that dividing tips amongst employees in proportion to hours worked, under Starbuck’s policy, was fair and equitable.

In reaching its decision, the court ruled that Section 351 prohibits management from taking tips from employees; it does not forbid an employer from requiring that tips be shared with other employees in customer service positions. The court stated that “Starbucks did not violate section 351 by permitting shift supervisors to share in the tip proceeds that were left in a collective tip box for baristas and shift supervisors.”

Although the Starbucks court expressly limited its findings to the facts of that case, the decision follows several other recent rulings expanding permissible tip pooling to include for most employees in the chain of service to customers, including busboys (Leighton v. Old Heidelberg, Ltd.), bartenders (Budrow v. Dave & Buster’s of California, Inc.), and kitchen staff and dishwashers (Etheridge v. Reins Int’l California, Inc.).

Employers with questions about tip sharing or pooling requirements under California law should review their policies with counsel.