Alerts and Updates

Unresolved Hospitality Tip-Pooling Issues to Be Decided by N.Y. Court of Appeals

October 25, 2012

The Second Circuit stated the Court of Appeals has neither defined "agent" under New York Labor Law nor held when a New York employer can exclude an employee from receiving tips from a pool.

All employers with tipped employees in New York may want to closely monitor this case.

In Barenboim v. Starbucks, the U.S. District Court for the Southern District of New York denied baristas' claims that New York Labor Law (NYLL) § 196-d bars distributing pooled tips to shift supervisors. The baristas contended that the shift supervisors exercised supervisory authority, rendering them "agents." In Winans v. Starbucks, the court denied assistant managers' (above supervisors in the hierarchy) claims that they should be included in tip pools because they spend the majority of their days serving customers (tips are pooled and shared among baristas and shift supervisors only).

On October 23, 2012, the U.S. Court of Appeals for the Second Circuit certified questions to the New York Court of Appeals, seeking guidance on the definition of the term "agent" under state Labor Law. The Secord Circuit stated:

These appeals present two unresolved questions of New York law:

First, what types of employees are eligible to participate in a tip-pooling arrangement, and what factors should inform a court's consideration of eligibility? Section 196-d prohibits an "agent," defined elsewhere as a "supervisor," N.Y. Lab. Law § 2(8-a), from retaining tips. New York law does not define "supervisor." Here, shift supervisors and ASMs both exercise supervisory roles, although in differing degrees, and it remains unclear how many or what kind of supervisory responsibilities are dispositive to the § 196-d analysis. Moreover, although the statute permits employers to require tip sharing by "a waiter with a busboy or similar employee," Id. § 196-d, it is unclear whether an employer may mandate a tip-pooling arrangement between a waiter and another customer-service employee of higher rank.

Second, if an employee is not an agent and therefore is eligible to receive tips, may an employer deny him tip-pool distributions even though customers paid gratuities into the pool in compensation for his service? Although § 196-d establishes who is ineligible to receive a share of tips, New York law does not clearly state whether an employer may exclude an otherwise eligible tip-earning employee from any share of the business's tip pool.

Because these unresolved questions implicate significant New York state interests, and are determinative of these appeals, we defer decision and certify them to the New York Court of Appeals.

Bottom line: The Second Circuit stated the Court of Appeals has neither defined "agent" under NYLL nor held when a New York employer can exclude an employee from receiving tips from a pool. The Second Circuit also seeks clarification as to when an employer can bar an otherwise eligible employee from receiving tips from a pool. Finally, the Second Circuit seeks guidance regarding the retroactive applicability the 2011 New York Department of Labor (NYDOL) State Hospitality Wage Order.

NYLL § 196-d allows employers to mandate tip sharing between servers, cashiers and bus personnel or similar employees, but whether an employer can require tip sharing between a servers and customer service employees above them in the hierarchy is unclear. NYLL § 196-d states that "agents" may not demand or accept tips received by an employee, or retain any tip for an employee. NYLL § 2(8-a) defines "agent" as a "supervisor," which is not defined.

The NYDOL State Hospitality Wage Order states that in order to be eligible to receive or share tips, employees must perform (or assist) personal service to patrons at a level that is a principal and regular part of their duties and is not merely occasional or incidental. The Wage Order allows employees to voluntarily share or pool their tips, allows employers to require tip sharing or tip pooling, allows employers to set the percentages to be shared with or distributed to various service occupations and requires employers to return to employees the full amount of any tips charged to credit cards (less the prorated portion of the tip taken by the credit card company).

About Duane Morris

Duane Morris will continue to monitor this significant development and will report on when the Court of Appeals issues its decision.

For Further Information

If you have any questions about this Alert, please contact any of the attorneys in our Employment, Labor, Benefits and Immigration Practice Group or the attorney in the firm with whom you are regularly in contact.

Disclaimer: This Alert has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice. For more information, please see the firm's full disclaimer.