Literally from coast to coast, class action lawsuits have been filed by servers seeking to recapture tip money shared in their employers’ tip pools. One class of plaintiffs recently won over $100 million in damages against Starbucks claiming that the company wrongfully withheld their tip wages in violation of the California law against tip pooling by requiring its counter servers, i.e. “baristas”, to share their tips with their store assistant managers. The ink was not yet dry on that court order when a 19 year old Massachusetts plaintiff brought his own potential class action against Starbucks, bringing a similar challenge to the company’s tip pooling practice under the Massachusetts version of the wage law outlawing tip pooling. The Massachusetts case is now in its very early stages, and while the state laws between California, Massachusetts, and New Hampshire differ, it would be wise to learn from the mistakes of others before engaging in any tip pool practice in your own shop.
The California Action
The California wage act outlaws tip pooling controlled by the employer. Specifically, the California law provides:
No employer or agent shall collect, take, or receive any gratuity or a part thereof that is paid, given to, or left for an employee by a patron, or deduct any amount from wages due an employee on account of a gratuity, or require an employee to credit the amount, or any part thereof, of a gratuity against as a part of the wages due the employee from the employer. Every gratuity is hereby declared to be the sole property of the employee or employees to whom it was paid, given, or left for.
Cal. Labor Code, section 351.
The class of plaintiffs prevailed in their action against Starbucks in California because they convinced the court that the assistant managers who managed the tip pool and who shared the tips along with the other baristas were in fact “agents” of the company as that term is used in Labor Code section 351. Presumably, had the tip pool been conducted by the baristas themselves or by someone otherwise not an “agent” of the company, the practice would not have been unlawful.
The Massachusetts Action
By contrast, the Massachusetts wage act does not outlaw tip pooling altogether, but merely specifies who may participate lawfully in such a pool. Specifically, the statute provides:
No employer or person shall cause, require or permit any wait staff employee, service employee, or service bartender to participate in a tip pool through which such employee remits any wage, tip, or service charge, or any portion thereof, for distribution to any person who is not a wait staff employee, service employee or service bartender.
Mass. Gen. L. ch. 149, sec. 152(c)
The legislature in Massachusetts has propounded a different policy than what California has enacted in its statute. Specifically, California outlaws employer directed tip pooling while Massachusetts permits employer directed tip pooling so long as the tip pool can only be shared by service workers. Arguably, the Massachusetts law better accommodates those establishments who seek to manage directly a fair distribution of tip income to all their service workers, including, for example, bus boys and perhaps bartenders, who may not have as much face-to-face opportunity to build enough good will with the customer to receive a tip, or who simply may not be present when the tip is left, but who nevertheless serve the customer and contribute to the hospitality that motivated the customer to tip in the first place.
The devil, as always, is in the details. For Massachusetts, that devil involves the definition of “service employee,” which in part means one who does not have “managerial responsibility.” While some may believe they will know it when they see it, the term “managerial responsibility” is not defined in the statute and may mean different things to different beholders. This open question will serve as the battleground for the pending case against Starbucks in the Superior Court in Massachusetts. Do scheduling shifts, counting the money and making sure the doors are locked constitute “managerial responsibility” or does that term imply more bottom line authority for the restaurant or for the company as a whole? Time will tell as the case proceeds, but the better view argues against making shift supervisors, who may themselves be non-exempt hourly workers, into people with “managerial responsibility” as such an approach would stretch that term beyond its intended meaning and beyond fairness to those workers who might become ensnared in the otherwise expansive definitional web.
The New Hampshire Statute
Although conventional wisdom does not typically suggest that New Hampshire would operate in a manner similar to California, the New Hampshire tip pooling statute works more similarly to the California wage act than to the Massachusetts law on this issue. Specifically, the New Hampshire wage act provides as follows:
I. Tips are wages and shall be the property of the employee receiving the tip and shall be retained by the employee, unless the employee voluntarily and without coercion agrees to participate in a tip pool which is not required and not controlled in any manner by the employer.
II If the employee agrees to participate, the employer is not precluded from administering a valid tip pool in which participation is voluntary, not coerced, and the employer exercises no control over the manner in which tips are pooled other than for accounting and bookkeeping purposes.
NH RSA 279:26-b
The New Hampshire statute in its simplicity avoids the difficulties the California and the Massachusetts statutes carry with them. Let us count the ways.
First, although the tip pooling policy adopted by the New Hampshire legislature follows the California approach to some extent, i.e., declaring tips to be the property of the worker who receives it, the New Hampshire language better clarifies when tip pooling can be permitted. Specifically, rather than making who is an “agent” an issue at trial, the New Hampshire statute makes “voluntary participation” the fundamental issue for tip pooling, as it should be in a jurisdiction that ensures that tips belong to the employee receiving them. Of course, whether a tip pooling scheme is “voluntary” may become a contested factual issue, but the New Hampshire law recognizes that there exist contexts where tip pooling is not only fair but so obviously fair that the workers who receive the tips would be willing to share them with those colleagues of theirs who make those tips possible.
Second, under the New Hampshire statute anyone can participate in the pool, and there will be no slippery slope arguments about who has “managerial responsibility” as under the Massachusetts statute or who is an “agent of the company” like under the California statute. The New Hampshire rule is characteristically terse and easy to understand, i.e., no tip pooling unless it is voluntary, and if it is voluntary anyone can participate and the employer can assist administering it. There really is no sense in denying those with “managerial responsibility” a share in the tips if they are voluntarily offered, especially since those with such responsibility often contribute substantially to the environment that motivates the customer to tip in the first place. Likewise, there is no sense in outlawing a tip pool merely because an “agent of the company” administers it so long as the company does not control it beyond what the employees voluntarily request.
If it can happen in California and Massachusetts, it can happen here. Review your tip management practices and make sure you comply with state law. There is nothing like a 9 figure damage award to motivate plaintiff lawyers to solicit potential plaintiffs to forming a class. Just see the recent Massachusetts litigation as an example.
Remember, no tip pooling can be coerced or required in any way in New Hampshire, which means that restaurants and hotels in this state should view tip pooling only as an accommodation to its workers if the workers ask for it. This is more likely to be the case in union shops but it can occur in smaller shops where the employees have a strong sense of ownership and team work. Any suggestion on the part of the company that the workers should pool tips may be taken as a subtle form of coercion that could be held against the company. The best way to prove a voluntary transaction is to make a record, which typically means to “get it in writing.” Any authorization to pool tips should be in writing and signed by the employee so that the employer can have a provable record of consent. This is especially true in the event the employer administers the tip pool and performs accounting functions on behalf of the employees. While the New Hampshire statute avoids the legalistic definition problems of the other statutes, the “voluntary” could become a contentious litigation issue of fact that employers who seek to offer a voluntary tip pooling program should be sure to confirm by documentary evidence.
About The Authors:
Christopher T. Vrountas is a partner in Nelson, Kinder, Mosseau & Saturley, P.C., a law firm with offices in Boston, Massachusetts; Manchester, New Hampshire; and Portland, Maine. The firm provides employment counseling and litigation services to clients in several industries, including hospitality, construction, and higher education. He leads the Employment Counseling and Litigation Practice Group and his clients include local, regional, national restaurant chains. He is a member of the New Hampshire Restaurant and Lodging Association and the Massachusetts Restaurant Association.
Allison C. Ayer is an associate at the firm. She is a member of the Food Service and Hospitality Practice Group and the Employment Counseling and Litigation Practice Group. She has significant experience representing national and regional restaurant chains in employment matters.