New York Court of Appeals Issues Opinion Addressing Tip Pool Arrangements

The New York Court of Appeals recently issued an opinion addressing Starbucks’ tip pooling practices with regard to its shift supervisors and assistant store managers, which we discussed here.  New York’s highest court was asked to decide what factors determine which employees may participate in a tip pool and whether employers may exclude otherwise eligible employees from a tip pool under New York Labor Law 196-d. In answering the first question, the Court declared that customer service employees with “meaningful or significant authority or control over subordinates” – not necessarily full or final authority – may not participate in an employer-mandated tip pool arrangement.  The Court provided examples of “meaningful authority,” such as the ability to discipline employees, assisting in performance evaluations or the hiring or termination process, and influencing the creation of work schedules. But, employees whose principal or regular duties involve serving customers may participate in an employer-mandated tip pool even if they are vested with limited supervisory responsibilities. The Court answered the second question in the affirmative.  Nevertheless, the Court stated it was leaving “open the possibility that there may be an outer limit to an employer’s ability to excise certain classifications of employees form a tip pool.”  Given the case’s procedural nature, the Second Circuit will ultimately determine how these legal principles apply to Starbucks’ shift supervisors and assistant store managers. The Court of Appeals’ decision comes weeks after a federal district court judge for the District of Oregon invalidated regulations issued by the United States Department of Labor in 2011.  The regulations prevented employers from including “non-tipped employees,” such as line cooks and dishwashers, in a tip pool when employers did not claim a tip credit.  Oregon Restaurant & Lodging v. Hilda L. Solis, No. 3:12-cv-01261-MO (D. Or. June 7, 2013). While these decisions are favorable for employers, their precedential value is limited, as both cases control only their respective jurisdictions and neither case is necessarily final.  Accordingly, employers should consult with counsel to evaluate their current tip pool practices and before implementing a new tip pool arrangement.  For more information, please contact John R. Vreeland, Esq., Director of the firm’s Wage & Hour Compliance Practice Group, jvreeland@genovaburns.com, or Joseph V. Manney, Esq., jmanney@genovaburns.com.