Plaintiff Jacob Davis brought a putative class action against International Coffee and Tea, LLC (the company that operates Coffee Bean and Tea Leaf) alleging that the company’s tip pooling policy violated California’s Labor Code section 351. The trial court sustained Coffee Bean’s demurrer to plaintiff’s second amended complaint without leave to amend. Plaintiff appealed the trial court’s decision, and the California Court of Appeal upheld the trial court’s ruling effectively dismissing the case. While the appellate court’s decision is unpublished and uncitable as binding precedent, the opinion provides great reminders to California employers about tip pools under California law, and gives me more content for this Friday’s Five.
Some background facts of the case before I get to the five reminders. Coffee Bean provided a “tip jar” for customers at the stores to leave tips. At the close of business each day, a shift supervisor collected the tips in the jar and placed the tips in a deposit box in the store safe. The Company did not require the supervisors to count the amount of tip money collected each day, and it did not require them to count or segregate the tips collected during each of the three daily shifts. It was only at the end of each week that the supervisor would count the tips collected throughout the week and distributes the tips to tip-eligible employees. This resulted in the combining tip money from 21 different shifts. Each tip-eligible employee received a pro rata share of the tips based on the number of hours he or she worked that week.
The Plaintiff alleged that certain days and shifts collected more tips than others, and because the Company failed to count and distribute those tips on busy shifts or days, the practice amounted to taking tips from employees who worked those busy shifts or days and giving those tips to the employees who worked the less profitable shifts.
1. Tip pooling explained
The court in International Coffee and Tea explained that tip pooling is permitted under California law:
Tip pooling is the “practice by which tips left by patrons at restaurants and other establishments are shared among employees.” (Etheridge v. Reins Internat. California, Inc. (2009) 172 Cal.App.4th 908, 910.) In the restaurant business, employer-mandated tip pooling is a long-standing practice, “which, through custom and usage, has become an industry policy or standard.” (Leighton v. Old Heidelberg, Ltd. (1990) 219 Cal.App.3d 1062, 1067 (Leighton ).) It permits employers “to ensure an equitable sharing of gratuities in order to promote peace and harmony among employees and provide good service to the public.” (Id. at p. 1071.)
2. Tip pooling is permitted under California law
The court explained that since the first published court opinion from 1990, tip pooling has been allowed under California law:
The first published decision to discuss tip pooling relative to section 351 was Leighton, which considered a policy requiring the restaurant server to share 15 percent of her tips with the busser and 5 percent with the bartender. (Leighton, supra, 219 Cal.App.3d at pp. 1606–1067.) Leighton determined that, so long as the employer or its agents are not sharing in tips left for employees, section 351 does not proscribe tip pooling. (Leighton, supra, at p. 1071.)
3. “Shift Supervisors” who work along other employees may participate in tip pools under certain circumstances
The court provided a good summary of the facts and holding in Chau v. Starbucks, which held that shift supervisors may participate in tip pools under certain facts without violating Labor Code section 351:
And, in Chau, the court held shift supervisors at Starbucks could share in the tip pool with baristas, even if shift supervisors could be considered agents of the employer. (Chau,supra, 174 Cal.App.4th at pp. 691, 696.) Starbucks’s tip pooling was like the tip pooling in our case. Customers could place tips in a collective tip box near the cash register. (Id. at p. 692.) At the end of the day, an employee would securely store the tips, and once a week, each tip-eligible employee would receive a pro rata share of tips, based on the number of hours he or she worked that week. (Id. at pp. 692–693, 697.) The plaintiffs did not challenge the formula for dividing the tip pool, only the inclusion of shift supervisors as tip-eligible employees. (Id. at p. 697.) The shift supervisors performed basically the same work as baristas and the employees worked as a team. (Id. at pp. 698–699.) Section 351, therefore, did not prohibit supervisors from taking a share of the tips left in a collective box for all service employees. (Chau, supra, at p. 699.)
4. Labor Code section 351 protects employers from taking or forcing employees to give tips that were left for the employee.
The court in International Coffee and Tea explained the intent behind section 351:
The Legislature intended “to ensure that employees, not employers, receive the full benefit of gratuities that patrons intend for the sole benefit of those employees who serve them.” (Leighton, supra, at p. 1068; accord, Chau v. Starbucks Corp. (2009) 174 Cal.App.4th 688, 699 (Chau ) [“[S]ection 351 was enacted to prevent an employer from pressuring an employee to give the employer tips left for the employee.”].)
The court recognized that there is some flexibility on how tip pools distribute tips and rejected Plaintiff’s theory that the tips collected during all of the shifts during the course of a week which were then distributed based on how many hours the employee worked during the week violated Labor Code section 351. The court state that Section 351 was established “to protect employees against the employer,” and “[n]othing in section 351 precludes the sharing of tips between employees.” Plaintiff argued that Section 351 provides that tips “’are the sole property of the employee or employees’ for whom they are left,” and therefore the tips left for the particular employees during that shift cannot be combined with tips left for employees working during other shifts. The court rejected this argument, citing Budrow v. Dave & Buster’s Of California, Inc.: “Given that restaurants differ, there must be flexibility in determining the employees to whom the tip was ‘paid,’ ‘given,’ or ‘left.’ A statute should be interpreted in a reasonable manner.” The court held, “In short, we see nothing in section 351 that prohibits the tip-pooling arrangement here – that is, sharing tips on a pro rata, weekly basis as opposed to a shift-by-shift basis.”
5. Tip pools may include back of the house employees
The court explained that California courts have permitted tip pools to include back of the house employees:
Thus, the courts have concluded tips are “left” for all manner of service employees, whether the employees are front of the house, back of the house, directly serving a customer, or merely in the chain of service.
(Citing Leighton v. Old Heidelberg, (1990) 219 Cal.App.3d 1062, 1068–1071; Etheridge v. Reins Internat. California, Inc. (2009) 172 Cal.App.4th 908 at pp. 921–923; Budrow v. Dave & Buster’s Of California, Inc., (2009) 171 Cal.App.4th at pp. 878–879, 883–884.)
As recently written about in prior posts, on March 23, 2018, the Consolidated Appropriations Act, 2018 signed by President Trump changed federal law on this issue and allows employers to share tips with back of the house employees.
As a reminder, the decision, Davis v. International Coffee and Tea, LLC (2018 WL 1602255) was not officially published and is not binding precedent. However, the court’s clear summary of the legal issues in that case still provide good reminders to California employers about issues to be mindful of when implementing tip pooling policies. It is also important for employers to seek qualified legal counsel on the issue to ensure their particular policy complies with the law.