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Starbucks Class Action Defense Cases–Chau v. Starbucks: California Appellate Court Reverses $86 Million Class Action Judgment Against Starbucks Holding Labor Law Class Action Claims Failed

Trial Court Judgment in Class Action Alleging Starbucks Violated Labor Code by Sharing Tips with Shift Supervisors Required Reversal because California Law does not Prohibit Starbucks’ Shift Supervisors from Sharing in Tips California State Court Holds

Plaintiff filed a class action against Starbucks alleging violations of California’s Unfair Competition Law (UCL) and Labor Code; the class action complaint alleged that Starbucks alleged shift supervisors to participate in tip pools in violation of California law, specifically Labor Code section 351. Chau v. Starbucks Corp., 174 Cal.App.4th 688 (Cal.App. 2009) [Slip Opn., at 1-2]. The trial court certified the litigation as a class action, id., at 2. Starbucks moved to decertify the class, but the motion was denied. Id., at 6. Prior to trial, the court granted plaintiff’s in limine motion to exclude evidence that shift supervisors serve customers, finding that such evidence was “irrelevant” (though it did allow some evidence on the matter). Id., at 7. Ultimately, the trial court awarded the class $86 million as restitution based on its finding at the conclusion of a bench trial that plaintiff had proved the UCL claim. Id., at 2. Starbucks appealed. The Court of Appeal reversed, holding that Starbucks’ tip sharing policy did not violate California law: “The applicable statutes do not prohibit Starbucks from permitting shift supervisors to share in the proceeds placed in collective tip boxes.” Id. The Court explained that the tip-pooling practice challenged by the class action “concern[ed] an employer’s authority to require equitable allocation of tips placed in a collective tip box for those employees providing service to the customer.” Id., at 2-3. The appellate court held at page 3, “There is no decisional or statutory authority prohibiting an employer from allowing a service employee to keep a portion of the collective tip, in proportion to the amount of hours worked, merely because the employee also has limited supervisory duties.” Accordingly, it reversed the trial court judgment.

Starbucks’ thousands of stores are staffed by baristas, shift supervisors, assistant store managers, and store managers. Chau, at 3. The Court of Appeal explained the differences between the store employees as follows: “Baristas are entry-level, part-time hourly employees responsible for customer service related tasks, such as working the cash register and making coffee drinks. Shift supervisors are also part-time hourly employees who perform all the duties of a barista, but are also responsible for some additional tasks, including supervising and coordinating employees within the store, opening and closing the store, and depositing money into the safe. A barista is eligible for promotion to shift supervisor after six months on the job. A store manager is a full-time salaried employee, and has the authority to recruit, hire, promote, transfer, schedule, discipline, and terminate baristas and shift supervisors. In some stores, a store manager is assisted by an assistant store manager, who is also a fulltime salaried employee.” Id., at 3-4. At trial, Starbucks introduced evidence that shift supervisors spend 90-95% of their time “performing the same jobs as baristas,” and that they had “no authority to hire, discipline, or terminate baristas.” Id., at 8. Moreover, shift supervisors are not considered “management” by the company, id. The trial court ruled against Starbucks because it found that shift supervisors “‘supervise’ and ‘direct’ the acts of other employees,” and that they were barred by California law to share in tip pools. Id., at 8-9.

We do not here discuss the Court of Appeal’s detailed analysis of Labor Code section 351. See Chau, at 9-16. Suffice it to say that the Court concluded Section 351 does not bar the shift supervisors from sharing in tips: “Because—as plaintiffs concede—section 351 does not prohibit a shift supervisor from keeping gratuities given to him or her for his or her customer services, there is no logical basis for concluding that section 351 prohibits an employer from allowing the shift supervisor to retain his or her portion of a collective tip that was intended for the entire team of service employees, including the shift supervisor.” Id., at 14. Moreover, “[b]ecause a shift supervisor performs virtually the same service work as a barista and the employees work as a ‘team,’ Starbucks did not violate section 351 by requiring an equitable distribution of tips specifically left in a collective tip box for all of these employees.” Id. The Court of Appeal summarized its holding at page 25 as follows:

Specifically, the undisputed facts show: (1) the vast majority of the time shift supervisors and baristas perform the same jobs; (2) these employees rotate jobs and work as a “team” throughout the day; (3) customers intend that their tips placed in the collective tip boxes collectively reward all of these service employees; and (4) Starbucks’s manner of dividing the collective tip boxes among the service employees (based on the time worked by each employee) is fair and equitable. If Starbucks was to institute a policy permitting its store managers to share proceeds from a collective tip box, the facts would not be the same and would implicate issues not presented here; therefore our legal reasoning and conclusions would not be controlling.

“Because the trial court’s interpretation of section 351 was not supported by the statutory language and led to a result contrary to the fundamental purpose of the statutory scheme, it is one that the Legislature could not have intended.” Id., at 26. Accordingly, the appellate court reversed the trial court judgment. Chau, at 25-26.

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