Tipping Over the Court Decision

We’ve already considered the issue of tips as part of an employee’s regular compensation in this blog, and I’ve also mentioned that as a Manager in the drugstore days, I was not allowed to accept them (customers would occasionally insist, and I’d then accept on behalf of my crew – and share the wealth with everyone who was on-shift that day). What you may not know is that while a number of states allow employers to pay lower-than-minimum wages to employees who receive tips, most of those same states have laws preventing employers from paying supervisors or managers based on the assumption of tips, OR letting supervisors and managers participate in “tip pool” systems. Which makes the situation going on in California right now all the more confusing…

If you’ve ever seen a tip jar on the counter at a bagel shop or a coffee house, then you’ve seen a tip pool in operation. In some restaurants, for example, you will see a team of servers looking after multiple tables, to the extent that it’s really difficult to tell who did the most work looking after a specific party – or who the customers were trying to reward when they left their tip. So what will happen is that at the end of the night, the manager will add up all of the tips left during that shift, divide by the number of people who were waiting tables (and sometimes by the number of hours worked), and pay each waiter that amount. Obviously, it doesn’t make any sense to have the manager (or supervisor) who is responsible for dividing up the tips also share in them; there is no way any of the staff would ever trust such a process, and no reason the customers (or higher management) should trust in such a system, either. You’d have to be an idiot even to suggest it…

Apparently, the people running Starbucks are that sort of idiot. A lawsuit filed in California in 2004 brought to light the fact that Starbucks was requiring its personnel to share tip-jar proceeds with their supervisors, despite state laws prohibiting this practice. The company defended this regulation by pointing out that a Starbucks supervisor does 95% of the same tasks as anyone else in their retail locations, including taking care of the customers, and that therefore it was appropriate that they share in the rewards (tips). Starbucks corporate also noted that its “supervisors” can’t hire, discipline or terminate the employees they direct, and are not responsible for distributing tips the way a manager running a tip pool would be. The court, however, felt differently, and last year awarded the baristas about $86 million in damages, and $20 million in interest. Which would have settled the matter had the company not appealed…

Which, of course, they promptly did. A story being reported this week by the Associated Press indicates that the 4th District Appeals Court has overturned the lower court’s ruling, agreeing with the company that the supervisors are doing essentially the same job as the baristas and should therefore be given a share of the tips. Which wouldn’t be a problem, except that the ruling directly contradicts the section of the state’s labor code that governs compensation schemes, which explicitly states that employers may not pay supervisors (of any kind) from tip pools (of any kind). Needless to say, the case is on its way to the California Supreme Court…

Now, I don’t want to rag on Starbucks, which is having enough troubles of its own, what with the closing stores, stock devaluation, and new direct challenges from McDonalds and Dunkin’ Doughnuts. But I can’t help thinking that this is not a healthy policy, both the original tip-sharing requirement and the ongoing legal battles. On the one hand, it has the potential to be a massive public relations nightmare, and on the other hand it has the potential to devalue supervisor positions all across the service sector (if companies are allowed to start cutting those salaries and paying the corresponding employees from tips), lowering the standard of living for supervisors and the quality of personnel who would be willing to accept those jobs. The repercussions could destabilize yet another sector of American commerce, lower the quality of service and ultimately performance and profit levels for thousands of companies, and drive the economy that much further into the tank…

Seems like rather a lot to risk over just not having to pay your supervisors another dollar or two, that’s all I’m saying…