May an employer’s tip-splitting policy include workers with limited supervisory duties?  Answer:  Yes.

In Baremboim v. Starbucks Corporation, 2013 NY Slip Op 04754 (June 26, 2013), the Court of Appeals answered  questions posed by the United States Court of Appeals for the Second Circuit on the legality of Starbucks Corporation’s tip-splitting policy under Labor Law § 196-d.

That Labor Law provision, in substance, prohibits an employer, its agent or officers from demanding or sharing in gratuities received by employees.

Plaintiffs “brought a putative class action in the United States District Court for the Southern District of New York alleging that Starbucks’ policy of including shift supervisors in the tip pools was unlawful under Labor Law § 196-d[.]”  Id. at 2.  The District Court dismissed the suit.  At the same time, the District Court, in a parallel action, “concluded that there was a triable issue of fact as to whether assistant store managers are tip-pool eligible.”  Id. at 3.

Upon appeal, the Second Circuit certified a series of “unresolved questions of New York law” to the Court of Appeals.  Id.  In 2011, the New York State Department of Labor issued a “Hospitality Industry Wage Order” that clarified that “an employee’s ability to participate in a tip pool [under § 196-d] ‘shall be based upon duties and not titles’ and codified that the Department’s] long-standing construction of § 196-d as limiting tip-pool eligibility to workers who ‘performed, or assist in performing personal service to patrons at a level that is a principle and regular part of their duties and is not merely occasional or incidental’.”  Id. at 6.

The Court of Appeals concluded that “employer-mandated tip splitting should be limited to employees who, like waiters and busboys, are ordinarily engaged in personal customer service, a rule that comports with the ‘expectation[s] of the reasonable customer’[.]”.  Id. at 7.  The Court also noted that “the [Department] has consistently and, in our view, reasonably maintained that employees who regularly provide direct service to patrons remain tip-pool eligible even if they exercise a limited degree of supervisory responsibility.”  Id.  Accordingly, the Court of Appeals concluded that “an employee whose personal service to patrons is a principal or regular part of his or her duties may participate in an employer-mandated tip allocation arrangement under Labor Law § 196-d, even if that employee possesses limited supervisory responsibilities.  But an employee granted meaningful authority or control over subordinates can no longer be considered similar to waiters and busboys within the meaning of section 196-d and, consequently, is not eligible to participate in a tip pool.”  Id. at 8.