Back in June of 2009, I wrote about the Starbucks tipping case. Some rascally class action attorneys had won a huge payday, claiming that Starbucks was violating the sanctity of the community tip jar. You see, Labor Code section 351 states that no “employer or agent” shall take any part of the gratuity “left for an employee by a patron.” An “agent” is defined by section 350(d) as anyone who can hire or fire, or who controls the acts of the employees.”
The attorneys managed to convince a Superior Court Judge in San Diego that when Starbucks permitted “supervisors” (you know, the ones that make 25 cents an hour more because they’ve been there the longest) to take a cut of the community tips, that violated section 351. The judge awarded $105 million in damages for this outrage. Since Starbucks would need to sell like a hundred Caramel Macchiatos to cover that, it appealed.
The Court of Appeal said, “hold the foam.” The flaw in the logic is obvious (understanding that I always have perfect 20-20 hindsight with court decisions). When I sit down at a restaurant, enjoy my meal and the service, and then leave a tip, I am leaving a tip for my specific server. However, when I order a latte at a Starbucks and drop my change into the tip jar, who am I tipping? I’m certainly not intending to tip only the barista. At that point, I don’t even know who is going to prepare my beverage (or even if it will be tip worthy). It is probably far more likely that I’m tipping the friendly cashier that accurately took my order and retrieved my scone. Or perhaps my intent was to tip the person that cleaned the washroom where I washed my hands before stepping up to the counter. As you can see, in the case of a community tip jar, we can never truly know who generated the tip, so it makes much more sense to assume that it is my intent to tip everyone working there, who have all joined to make this such a special coffee experience, from the supervisors down. Hell, I wouldn’t even mind if the owners took a cut, because after all they are the ones that hired the fine people who cleaned the restroom, who took my order, who retrieved my scone and who made the Venti, whole milk, extra hot latte that Aaron drank.
Indeed, the Court of Appeal concluded that the purpose behind section 351 was not so much to quibble about splitting up the tips, but rather to “prevent a fraud on the tipping public” by prohibiting an employer from giving a tip left for a server to someone not intended by the tipper. There is no such fraud with the Starbucks tip jar.
Recently, the California Supreme Court put another crack in the ol’ tip jar. In Lu v. Hawaiian Gardens Casino, Inc., former dealer Louie Hung Kwei Lu sued the casino, claiming its policy of requiring dealers to segregate 15 or 20 percent of their tips and pay them into a community tipping pool violated the statute. Lu launched his action before I had written my Starbucks article, so without the benefit of that wisdom, he felt it was unfair that a percentage of “his” tips were being distributed to various service workers, including the people who brought him his chips, host, floor people and concierges. But in Lu’s defense, a dealer’s situation is slightly different than the community tip jar at Starbucks. When someone gives a tip to a dealer, he or she is usually thanking the dealer for a good hand. It is far more likely that tip is intended for and directed at the dealer, not the people who support him. Thus, under the reasoning of the Starbucks case, splitting the dealer’s tip would be a fraud on the tipping public.
But the Supreme Court dealt Lu a bust hand, upholding the ruling of the Court of Appeal. It gave no thought to the intent of the tipper, but instead decided that Labor Code section 351 does not provide a private cause of action for violation of that section. Rather, the penalties for violating the statute are built in. Section 351 provides that an employer who violates section 351 is guilty of a misdemeanor, and can be fined or even imprisoned. The statute does not also permit doubling down with private actions by the employees themselves.
But Lu, or at least others who follow, did win the side pot. While the Supreme Court held that there is no private action under section 351, the court noted there would be nothing preventing a claim under some other theory, such as common law conversion (the civil law equivalent of theft).
