Starbucks Ordered To Pay Baristas $105M In Back Tips

Portfolio Media, Friday, March 21, 2008, Vol. 114 No. 54

By Jocelyn Allison, jocelyn.allison@portfoliomedia.com

New York - A judge has ordered Starbucks Corp. to reimburse its California servers more than $105 million to make up for a cut of the employee tip pool that the company instead doled out to shift supervisors.

California Superior Court Judge Patricia Cowett issued an order Thursday in the class action that requires the coffee giant to pay $86.7 million in back tips plus interest to current and former employees in Starbucks' California stores.

The judgment covers about 120,000 people who worked for Starbucks between October 2000 and the start of the trial Feb. 19, said the plaintiffs' lead trial counsel, David Lowe, a partner at Rudy Exelrod & Zieff in San Francisco.

Judge Cowett also issued an injunction preventing Starbucks from continuing to compensate shift supervisors with tips from the tip pool, according to a letter she wrote to counsel.

The judgment arose from a 2004 class action brought by former employee Jou Chou in which the court found that Starbucks' practice of splitting the tip pool with supervisors violated California law.

On Feb. 28, the court ruled that shift supervisors are "agents" under state law because they supervise and direct baristas and so cannot share in the same tip pool.

In a letter to counsel this week, Judge Cowett based the restitution amount on expert testimony that placed the hourly tip rate at $1.71 and the shift supervisors' total hours worked at 50,694,694.

Lowe said the ruling sent a clear message that even a huge corporation like Starbucks was not above the law.

"Other companies comply with this law, so Starbucks should, too," he said.

Starbucks plans to "vigorously appeal" the ruling and seek a stay of the court's injunction pending the appeal, the company said in a statement.

"This case was filed by a single former barista and, despite Starbucks' request, the interests of the shift supervisors were not represented in this litigation," the company said. "As a result, Starbucks believes that the court's decision is not only contrary to law, it is fundamentally unfair and beyond all common sense and reason."

Chou, a college student who worked at Starbucks as a barista from 2003 to 2004, issued a statement through her lawyers saying she felt vindicated.

"Tips really help those receiving the lowest wages," she said. "I think Starbucks should pay shift supervisors higher wages instead of taking money from the tip pool."

The judge's decisions is likely to have a far-reaching effect, spurring similar suits across the country, said employment attorney Elise Bloom, who called the ruling a "stretch" of California law.

Bloom, a partner at Proskauer Rose LLP, argued that shift supervisors play a key role in the amount of tips employees receive by promoting good service and helping to make sure orders are filled.

"It's not like you have the owner of the restaurant sharing in the tips," said Bloom, who was not involved in the Starbucks litigation. "It's the people right there on the floor doing the work."

Lowe said he hoped the judge's decision would spur other states to adopt a law similar to California's.

The plaintiffs are represented in this matter by Rudy Exelrod & Zieff LLP; Goldstein Demchak Baller Borgen & Dardarian; Bohm Matsen Kegel & Aguilera LLP; and the Law Offices of Terry J. Chapko.

Starbucks is being represented by Akin Gump Strauss Hauer & Felt LLP.

The case is Jou Chou v. Starbucks Corporation, case number GIC836925, in the Superior Court