Another Crack in the Community Tip Jar -- Lu v. Hawaiian Gardens Casino, Inc.
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.
Today, 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).
Appeal Court Says, "Hold the Foam" on Starbucks Tipping Case
Some plaintiffs attorneys received a huge pay cut today, after the California Court of Appeal reversed an $105 million judgment against Starbucks.
The case involved the ever-present tip jar that sits by the register at your favorite Starbucks. It is the procedure of Starbucks, like most every other business that has a tip jar, to split up the tips among all those that were working, including the “supervisors.” As we analyze this case, keep in mind that a “supervisor” at a Starbucks is most likely just another barista that has been there slightly longer than the other baristas, and as a result is put in charge. It’s not like this is someone at the corporate office.
Enter California Labor Code section 351, which 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.”
These rascally class action attorneys thought they had Starbucks by the beans. First they created a somewhat fictional perception of the role of the “supervisors” and spent a great deal of time in the case arguing that they were agents of the employer because they directed the conduct of the other employees. From that viewpoint, it was easy to claim that Starbucks had violated section 351 by including the supervisors in the tip distribution. Judge Patricia Cowett in San Diego Superior Court must have skipped her coffee that day and bought that reasoning and awarded the class of 100,000 baristas $86.7 million, which grew to $105 million with interest.
But 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. Indeed, the Court of Appeal concluded that the purpose behind section 351 was 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.
Further, the “supervisors” are not “agents” of the employer in the sense meant by section 350. The supervisors are not there to grab the tips on behalf of a greedy Starbucks organization; they are just more experienced baristas, probably earning 50 cents per hour more and completely entitled to share in those tips.
The ruling of the Court of Appeal reversed the judgment.
Class-Action Suit Against Starbucks Grinds to a Halt
Don’t even get me started about class-action lawsuits.
In most (but not all) cases they are nothing but legalized extortion. They do not seek to address or correct a wrong, but rather are directed at hyper-technical violations that are used to create a putative class. In the end, the lawyers make millions in attorney fees and the "solution" to the problem is often comical. There is no shortage of examples, but one of my favorites involved the Jenny Craig diet centers. A class action was brought because Jenny Craig was committing the heinous act of failing to disclose that all the thin people displayed in the print ads did not represent the "typical" results. (Would anyone on the Jenny Craig diet have believed that all who entered would achieve the same results as those highlighted in the ads?) The class-action lawyers were paid huge legal fees, and for settlement the represented members received – are you ready? – a set of Jenny’s diet motivation tapes.
If a business is committing a genuine wrong that is causing real injury, and refuses to correct the situation, then have at them. But my frustration comes from the fact that many of these suits involve no real wrong, and in any event could be corrected with a stern letter from an attorney.
The California Court of Appeal agreed with my opinion of class-action lawsuits in the recent decision, Starbucks v. Superior Court (2008 DJDAR 18131). In the 1970s, California passed an obscure Labor Law that prohibits employers from asking prospective employees about minor marijuana-related convictions that are more than two years old. The two-page employment application form used by Starbucks, designed for nationwide use, asks the applicant to disclose marijuana convictions, which is theoretically a violation since the applicant could choose to disclose a conviction more than two years old if unaware of the law. However, the second page of the form specifically instructs California applicants not to disclose marijuana convictions more than two years old.
Plaintiffs’ counsel claimed that was not good enough, arguing that the question and the disclaimer should be together. (A letter from my office could have corrected that, but perhaps plaintiffs’ counsel is not as persuasive.) Unfortunately for Plaintiffs’ counsel, of the three representative plaintiffs, two testified at their depositions that they understood the disclaimer, and all three testified that they had no marijuana convictions to disclose. Nonetheless, attorneys for the class were seeking the statutorily mandated $200 per offense, which would have resulted in an eight-figure award if successful. Incredibly, Judge David C. Velasquez of the Orange County Superior Court denied Starbuck’s motion for summary judgment and certified the class, allowing the case to go forward.
In reversing Judge Velasquez and ordering the case dismissed, the Court of Appeal stated that "there are better ways to filter out impermissible questions on job applications than allowing ‘lawyer bounty hunter’ lawsuits brought on behalf of tens of thousands of unaffected job applicants." Justice Raymond Ikola added, "the civil justice system is not well served by turning Starbucks into a Daddy Warbucks."
