California Labor and Employment Defense Blog

Chou v. Starbucks - Tip Pooling Case Continues In Trial

Yesterday, the second phase of trial started in Chou v. Starbucks.  The plaintiffs are asking the judge for restitution and interest to a class of about 120,000 Starbucks baristas who worked for the company since 2000.

Initially, plaintiffs in Chou v. Starbucks had alleged violations of Labor Code §351 and Business and Professions Code §17200, California's unfair competition law as a result of the managers taking portions of the tips left by patrons in the tips jars.  

Labor Code section 351 provides:

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.

(emphasis added). Section 351 prohibits managers from participating in tip pooling arrangements.

In January the plaintiffs in Chou v. Starbucks voluntarily dismissed their Labor Code claim and decided to proceed only under their Business and Professions Code cause of action. This move could be for a number of reasons, primarily that the statute of limitations is one year longer (4 years) as opposed to the statute of limitations under the labor code (3 years). Also, by dropping the labor code violation, the case can only be heard by the judge, a trend which a lot of plaintiffs’ counsel prefer when the case involves technical violations of the labor code that may not draw a lot of sympathy from a jury. 

In the seminal 1990 case on tip-pooling, Leighton v. Old Heidelberg, Ltd., the court held that an employer’s practice of tip pooling among employees was not prohibited by section 351 because the employer did not “collect, take, or receive” any part of a gratuity left by a patron, and did not credit tips or deduct tip income from employee wages. The court relied upon the “industry practice” that 15% of the gratuity is tipped out to the busboy and 5% to the bartender, which was “a house rule and is with nearly all Restaurants.”

UPDATE:  Starbucks was held liable for over $100 million in damages, click here for updated post.

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