NY Starbucks Tip Fight Percolates Beyond Java Giant

Law360, New York (May 21, 2013, 7:47 PM ET) -- Restaurateurs say the outcome of a New York high court fight over which Starbucks Corp. workers get tips could subject the state's massive hospitality industry to crippling liability, but plaintiffs' lawyers say bosses really see the battle as an opportunity to cut payrolls by spreading tips to more employees.

The barista battle will come to a head May 28 when the New York State Court of Appeals takes up two lawsuits, including a class action brought by baristas who say shift supervisors should not be able, as "agents" of the Seattle-based coffee chain, to dip into the tip jar.

Baristas lost in New York federal court in a vindication of the chain's current policy in the Empire State, but their lawyer, Shannon Liss-Riordan of Lichten & Liss-Riordan PC, hopes the appellate judges will reverse that finding.

Liss-Riordan is pushing for a ruling that the plain language of the relevant tip statute excludes even shift supervisors, as agents of an employer, from sharing in gratuities.

“There's a very good reason for that policy, which is that it protects workers,” she said.

Liss-Riordan says the statute in question — New York Labor Law Section 196-d — bans all supervisors from being paid out of tip pools, but lawyers for Starbucks say it gives employers the discretion to decide who gets paid from tips.

Since the Second Circuit asked the state's high court to clarify what the law requires, the appeal has drawn attention from beyond Starbucks, with two major New York trade groups weighing for the state's restaurant and hospitality businesses.

The New York State Restaurant Association says a decision in favor of the baristas to exclude shift supervisors from tip pools would "result in unforeseen civil liability for thousands of restaurants in New York."

The barista plaintiffs, including first named plaintiff Jeana Barenboim, are seeking a “a radical departure from existing law” that has been in place for four decades, the group's attorney Jeffrey W. Brecher of Jackson Lewis LLP said.

The purpose of the law is to prevent employers from confiscating tips — something Starbucks does not do — not to prevent all but the lowest rung of workers from being paid with tips, Brecher's brief argues.

That's simply not true, says Daniel Maimon Kirschenbaum of Joseph Herzfeld Hester & Kirschenbaum LLP, Liss-Riordan's local ally in the Barenboim case and a seasoned employment class action litigator in New York.

“The restaurant association is trying to use this as an opportunity to get some kind of decision that will grant them amnesty for their bad behavior over the years,” Kirschenbaum said. “They like to break the law and they're thinking this could be their chance to get a free ticket.”

Many plaintiffs' lawyers in the Empire State, including Levy Davis & Maher LLP litigator Jonathan A. Bernstein, have pending cases that could be impacted by the Starbucks decision.

"Tips subsidize an employer’s labor costs; an employer has every incentive to shift liability for paying its workers from itself to its customers," Bernstein said.

That is a key point for the plaintiffs' lawyers, who note that supervisors would be paid extra either way but that Starbucks would have to foot the bill if the tip jar became off-limits.

The First Circuit last year awarded $14.1 million in damages to a group of Massachusetts baristas who lost tips to shift supervisors. That ruling may work in the New York baristas’ favor, according to Liss-Riordan, who also litigated the Massachusetts case.

"Starbucks is trying to do the same there here that they did in Massachusetts, which is avoid the plain language of the tips law,” Liss-Riordan said. "I happen to think that the policy the First Circuit adopted was the correct one. I hope its the same policy that the Court of Appeals adopts.”

If the state high court rules her way, the damages could be even higher since New York has more Starbucks stores than Massachusetts.

Working against the baristas may be a brief penned by the New York State Department of Labor, which says the statute and a related wage order allow for workers to be eligible for tips "even if they have some managerial or supervisory responsibilities — so long as those other responsibilities are not so extensive as to undermine the primacy and regularity of their customer-service duties."

"The Barenboim plaintiffs misread 196-d," the agency brief said, though it did add the caveat that the Labor Department was not a party to discovery in the cases in federal trial court and was not presenting a "final opinion on the validity of Starbucks’ specific policy."

Further adding to the legal melange is a second case before the Court of Appeals — Winans v. Starbucks — in which a group of assistant store managers argue they should be eligible to collect from the tip jar.

Those workers mark a third group distinct from shift supervisors — who some characterize as “glorified baristas” — and the baristas themselves.

Assistant store managers "spend the vast majority of their time (up to 98 percent) vending coffee and food and operating cash registers as members of a customer-service team," according to a brief penned by their lawyer, Paul W. Mollica of Outten & Golden LLP.

"[Assistant store mangers] lack hiring and firing authority, and cannot set wages or promote employees. Yet Starbucks bars [them] from participating in the team’s tip pool on the grounds that they are Starbucks 'agents,'" their brief says.

The fact that two different groups of employees are suing with divergent aims — the baristas pushing to exclude the other two groups of employees from tips and the assistant managers working to be included in the division of tips — isn’t lost on any of the litigants.

“You have two different sets of plaintiffs in this case, arguing from two different positions,” said Carolyn Richmond of Fox Rothschild LLP, who penned a brief supporting Starbucks on behalf of the New York City Hospitality Alliance. “It's the height of irony.”

Her group and Starbucks argue that the case should hinge on the work an employee does.

"It's important not to look at the job titles. You have to look at the job function," Richmond said.

Like the restaurant association, the hospitality group stresses that a decision excluding Starbucks shift supervisors from the tip pool could cascade to restaurants where workers like maitre d's, wine stewards and shift captains typically do a great deal to enhance the tips that are handed out.

One thing the lawyers agreed upon was that there was no way to predict what the Court of Appeals will do — and certainly no reason to assume the court will hew to the district court rulings backing Starbucks.

“This is the same court that threw the industry into disarray with the World Yacht decision five years ago,” said Richmond, referring to a 2008 decision that rejected a trial court finding that employers were not required to share mandatory service fees tacked onto the bills of large parties with workers.

Starbucks is represented before the Court of Appeals by Rex S. Heinke of Akin Gump Strauss Hauer & Feld LLP. The baristas are represented by Shannon Liss-Riordan of Lichten & Liss-Riordan PC and Daniel Maimon Kirschenbaum of Joseph Herzfeld Hester & Kirschenbaum LLP. The assistant store managers are represented by Paul W. Mollica of Outten & Golden LLP.

The restaurant association is represented by Jeffrey W. Brecher of Jackson Lewis LLP. The hospitality alliance is represented by Carolyn D. Richmond of Fox Rothschild LLP.

The appeals are Barenboim v. Starbucks and Winans v. Starbucks, case number 122, in the New York State Court of Appeals.