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$14 Million “Tip” for Starbucks’ Baristas

Counsel Financial

On November 9, 2012, the First Circuit Court of Appeals affirmed the District Court of Massachusetts' determination that Starbucks' shift supervisors had improperly shared in tips left at the counter for baristas at their numerous coffee shop locations.

Starbucks employees are generally divided into four subcategories: store managers, assistant managers, shift supervisors and baristas. Pursuant to company policy, each Starbucks location maintains tip jars by the cash register for customers' tips. Their internal procedures dictated that all tips accumulated by the end of the week were distributed among the various baristas and shift supervisors within the store in proportion to the number of hours each individual worked that week.

Plaintiffs, Starbucks baristas, claimed that the company's policy of including shift supervisors in the pool of employees eligible to share in tips violated the Massachusetts Tips Act, which provides that "wait staff" employees shall not be required to share tips with anyone who is not also classified as a "wait staff" employee. Plaintiffs had moved to certify as a class current and former Starbucks baristas, contending that including shift supervisors violated the Act’s third requirement which defined a "wait staff" employee as having "no managerial responsibility".1

In defense of their managerial acumen, Starbucks defended its shared tip policy, arguing that shift supervisors – despite their title - actually exercised little managerial responsibility and spent up to 90% of their time performing the same tasks as the baristas. Despite the plain language of the statute, Starbucks argued, in the alternative, that: (1) monies placed in the tip jars were not “tips” for the purpose of the statute, (2) it was unfair to exclude shift supervisors from sharing in the tip pool when they spent much of their time serving customers, (3) the Massachusetts Tips act was simply unfair; and (4) that excluding shift supervisors created a windfall for baristas.

The Court of Appeals rejected each and every argument, holding:

In this case all roads lead to Rome. The plain language of the Act, the legislative purpose underlying it, and the Attorney General’s interpretive guidance coalesce to counsel in favor of the conclusion that Starbucks’ Massachusetts-based shift supervisors are not ‘wait-staff’ within the meaning of the tips act.2

In light of their continued losses from US operations, Starbucks may want to consider renaming their "tip" jars to "operating expense" jars in the near future. The company's 2011 annual 10-K report to the SEC revealed that in 2011 Starbucks closed 344 stores in the United States, marking their third straight year of decline.3

VERDICT: $14,126,542
ACTUAL: TBD, as Plaintiffs are owed prejudgment interest at a rate of 12% per annum
COURT: United States Court of Appeals, First Circuit

1 Mass. Gen. Laws Ch. 149, § 152A(b),(c) (2008).
2 Matamoros v. Starbucks Corp., 2012 U.S. App. LEXIS 23185 (1st Cir. 2012).
3 Starbucks Corp., Annual Report (Form 10-k), at 20 (Oct. 2, 2011).

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