Which Employees Can Have Their Hands In The Tip Jar? Finally Some Clarification

On June 26, 2013, the New York Court of Appeals issued a decision concerning who may lawfully participate in a restaurant tip-sharing system. The state's highest court stated that for employees to receive tips from a tip-sharing arrangement, they must perform, or assist in performing, personal service to patrons as a regular part of their duties. Employees with limited supervisory authority are still eligible to receive tips if they regularly provide service to patrons, but become ineligible once their supervisory duties rise to the level of "meaningful authority." The court also determined that an employer may exclude eligible employees from the tip-sharing arrangement, although the discretion to do so is not unlimited.1

Legal Background

In 2008, two separate lawsuits were filed against Starbucks, one by baristas and another by assistant store managers, arising out of the practice of distributing the contents of the common tip jar to baristas and shift supervisors, but not to assistant store managers.2

Both lawsuits hinged on an interpretation of New York Labor Law § 196-d, which prohibits employers and their agents or officers from directly or indirectly retaining any part of a gratuity received by an employee. The statute also expressly permits tip-sharing arrangements by waiters, busboys, and "similar employees." The law's stated purpose was to prevent employers from retaining money paid by customers whose intent or belief was that the money would go to the employee, not to the employer.3 The ambiguous but broad language of this statute has given rise to numerous class action lawsuits in New York over the past five years.

In Barenboim, the baristas argued that shift supervisors were not eligible to share tips even though they served customers, contending that any amount of supervisory authority is sufficient to render an employee a (tip-ineligible) "agent" of the employer. In Winans, however, the assistant store managers claimed that they were improperly excluded from receiving tips from the tip jar, arguing that the law required that an employee have final authority to terminate subordinates in order to be considered an "agent."

As a result of these lawsuits, two questions were certified from the Second Circuit Court of Appeals to the New York State Court of Appeals: (1) what factors determine whether an employee is eligible or ineligible to receive distributions from an employer-mandated tip-sharing arrangement, and (2) whether an...