COVID-19 Alert   We have changed our procedures for COVID-19.   Learn More
What to consider when laying off employees due to COVID-19. Learn More

Tip-Pooling v. Tip-Allocation: Can Managers Receive Tips?

If you asked me this question a year ago I probably would have told you, “not unless the tip is left for the manager and the manager alone.”  After a flurry of cases in 2009, however, my answer may be a little different.

Labor Code Section 351 states, in pertinent part,:

No employer or agent shall collect, take, or receive any
gratuity or a part thereof that is paid, given to, or left for an
employee by a patron, or deduct any amount from wages due an employee
on account of a gratuity, or require an employee to credit the
amount, or any part thereof, of a gratuity against and as a part of
the wages due the employee from the employer. Every gratuity is
hereby declared to be the sole property of the employee or employees
to whom it was paid, given, or left for.

Courts have long interpreted this to mean that tips left for employees may not be shared with management employees.  Managers and supervisors are agents of the employer.  Requiring employees to share their tips with the employer’s agents violates Labor Code 351.

Courts have interpreted this to prohibit tip-pooling arrangements where managers or supervisors receive a part of the tip.  See, e.g. Jameson v. Five Feet Restaurant, Inc. 107 Cal.App.4th 138 (2003) [prohibiting a tip-pooling policy that required servers to share 10% of their tips with floor managers].  Courts have allowed  tip-pooling arrangements so long as managers and supervisors do not receive tips left for the employees.  See, e.g., Leighton v. Old Heidelberg, Ltd 219 Cal.App.3d 1062 (1990) [approving tip-pooling policy that required waitress to share 15% of her tips with bussers that worked the same tables]; Budrow v. Dave & Buster’s of California, Inc., 171 Cal.App.4th 875 (2009) [approving tip-pooling policy that required servers to share tips with bartenders]; Etheridge v. Reins International California, Inc. 172 Cal.App.4th 908 (2009) [approving tip-pooling policy that required servers to share tips with kitchen staff, bartenders, and dishwashers].

A recent appellate court case carved out an exception to the seemingly straight-forward rule against sharing tips with management employees.  In Chua v. Starbucks, 174 Cal.App.4th 688 (2009) the court upheld Starbuck’s “tip-allocation” policy where customers put tips into a tip jar that was intended to compensate all employees working the shifts, including shift supervisors.  There were several key features to Starbuck’s policy that differentiated the “tip-allocation” policy from other seemingly similar “tip-pooling” policies.

Unlike a typical restaurant, the tip was not left on the table and was not part of the general bill or otherwise left for a specific individual.  Starbuck’s had a tip bucket on the counter making it obvious that the tip would not be for any one specific employee.  Rather, the tips were intended for a team of employees.  Had the tip been left for a specific individual then the court likely would not have allowed the shift supervisors to share in the tip.

Starbuck’s tip-allocation policy only provided tips to people within the “chain of service.”  In Starbuck’s case, the weekly tips were added up and divided amongst the employees that worked during that week.  Employees received a pro-rata share of the tips based on the total hours worked by the employees.

It is important to note that while shift supervisors were allowed to receive a portion of the tip-allocation, store managers and assistant store managers did not receive any portion of the tips.  Shift supervisors, while having some authority to hire, fire and discipline other employees, at least worked within the chain of service and were less likely to be considered the company’s “agents.”  I suspect this particular criteria will be the subject of further litigation in future cases.

Tip-pooling and tip-allocation cases are on the rise.  If you require employees to share their tips with other employees you should seek the advice of competent professionals to advise you regarding how to ensure your company complies with the law.

The Law Office of Phillip J. Griego
95 South Market Street, Suite 520
San Jose, CA 95113
Tel. 408-293-6341
Original article by Robert E. Nuddleman, former associate of The Law Office of Phillip J. Griego.

Feel free to suggest topics for the blog. We are happy to consider topics pertaining to general points of Labor and Employment Law, but we cannot answer questions about specific situations or provide legal advice. If you desire legal advice, you should contact an attorney.

Your use of this blog does not create an attorney-client relationship between you and the Law Office of Phillip J. Griego. The use of the Internet or this blog for communication with the firm or any individual member of the firm does not establish an attorney-client relationship. Confidential or time-sensitive information should not be posted in this blog and the Law Office of Phillip J. Griego cannot guarantee the confidentiality of anything posted to this blog.

Phillip J. Griego represents employees and businesses throughout Silicon Valley and the greater San Francisco Bay Area including Palo Alto, Menlo Park, Mountain View, Los Altos, San Jose, the South Bay Area, Campbell, Los Gatos, Cupertino, Morgan Hill, Gilroy, Sunnyvale, Santa Cruz, Saratoga, and Alameda, San Mateo, Santa Clara, San Benito, Mendocino, and Calaveras counties.