Court Upholds Coffee Company’s Inter-Shift Tip Pool Arrangement

Hospitality Law June 2018

Carly Baratt, Associate in the Employment, Labor & Workforce Management practice, in the firm’s New York office, authored an article in Hospitality Law, titled “Court Upholds Coffee Company’s Inter-Shift Tip Pool Arrangement.”

Following is an excerpt:

A California appellate recently provided additional guidance to employers regarding permissible California tip-pooling practices in Davis v. International Coffee and Tea, LLC, No. E066700, 2018 Cal. App. Unpub. LEXIS 2325 (Cal. Ct. App. 04/03/2018).

At issue in this case was a retail coffee shop’s policy to commingle tips collected throughout the week across 21 different shifts and distrib­ute such tips to each tip-eligible employee on a pro rata basis based on the number of hours the employee worked that week. A server and tip-eligible employee argued that the com­pany’s failure to segregate tips on a daily or shift-by-shift basis was patently unfair to those employees who worked the busiest — and thus most profitable — days and shifts.

The employee filed a complaint against her employer, asserting a host of causes of action, which included claims for accounting, damages, injunctive relief (i.e., an order that company adopt a shift-by-shift tip pooling policy); class action status; violation of California’s unfair competition law and Private Attorney General Act; failure to provide accurate wage statements; and constructive trust, conversion or trespass to chattel. In its demurrer, the company argued that six of the employee’s seven causes of action were premised on a violation of California Labor Code Section 351, which has been interpreted to allow tip pooling provided the practice is reasonable and fair. The company rejected the employee’s contention that its tip-pooling policy was unfair and unreasonable.

The court sided with the company. At the outset, the court emphasized that Section 351 simply does not address tip pooling — it merely prevents employers from taking its employees’ tips. Consequently, several California decisions have approved tip-pooling policies in a variety of settings and forms. Although none of these decisions specifically addressed the formula for disbursement of inter-shift tips adopted by the company here (i.e., on a pro rata basis based on total hours worked per week), the court found their reasoning equally applicable. Ac­cording to the court, and as recognized by the jurisprudence, nothing in Section 351 precludes the sharing of tips between employees — only between management and employees.