Rewarding Exceptional Service is Upheld in California

Harry Truman was President when Bill Rosenberg opened the first Dunkin’ Donuts in Quincy, MA. By the time Dunkin’ franchises began popping up, Dwight Eisenhower was President and America was in the midst of an economic boom.

When customers to those early shops came in for a hot cup of coffee they routinely left their spare change as tips for good service. Over the years, tipping became as much of a ritual as a steaming cup of morning coffee. But, today new laws aimed at protecting wait staff in restaurants and bars threaten that practice.

The Massachusetts state legislature amended the law in 2004 which prohibits managers from sharing in the tips left for service staff. The law specifically says, “Tip sharing is permitted, provided that the distribution of the tips is limited to wait staff employees, service employees and service bartenders.”

Further clarification from the office of the Attorney General of Massachusetts says, “Anyone who has any superiority in rank over another employee cannot share or receive any tips or service charge, whether or not part of their work includes working along side or with the employees serving the patrons directly. This includes shift leaders, supervisors, managers, assistant managers and anyone who can direct another employee on his or her job responsibilities.”

That law has broad implications for sit down restaurants but has raised questions among quick service restaurants where shift leaders are part of the team whose job it is to perform customer service. At Dunkin’ Donuts, shift leaders work the counter to maintain good customer service during peak periods. In addition, many shift leaders at Dunkin’ shops do not have the authority to hire or fire employees. As a result of the 2004 amendment, many quick service restaurants—Dunkin’ Donuts included—have removed tip jars and will not allow employees to accept tips.

Across the country, class action lawsuits have sprung up on behalf of restaurant workers who believe it is unfair for their managers or supervisors to share in tips especially because many of these workers are paid less than minimum wage and rely on tips to make a living wage. Recently, waiters at a Japanese BBQ restaurant in Los Angeles sued to prevent other restaurant staff—busboys, dishwashers and bartenders—from sharing in their tips. In 2008, a Los Angeles Superior Court judge dismissed that lawsuit and, in March of this year, a California Appeals Court upheld the ruling finding that tip pooling does not violate the California Labor Code providing that gratuities or tips are the sole property of employees.

In New York wait staff at Nobu, a high-end sushi restaurant, filed suit to prevent managers or supervisors from sharing in their tips. D. Maimon Kirschenbaum, a lawyer for the plaintiffs, told the New York Times, “They were basically supplementing managers’ salaries from waiters’ pay.”

But, sit-down restaurants—especially expensive ones—operate differently from quick service restaurants like Dunkin’ Donuts or Starbucks. That’s why last month’s ruling by a San Diego, CA Appeals Court involving a Starbucks tip pooling case is such a watershed. The judges overturned a lower court ruling that awarded $86 million in damages for allowing shift supervisors to share in the tip pools. The appeals court found the supervisors were entitled to share in the tips because they are involved in delivering customer orders.

Customers appreciate the opportunity to leave tips—especially when they frequent the same shops and get to know their servers. The expectation of excellent service comes with the reward.

These are the issues state attorneys general, franchisors and franchise owners will need to resolve. It’s not clear if tip pools will be allowed going forward. What is clear is that until the laws are settled uniformly, class action attorneys will line up for the opportunity to file lawsuits.

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Starbucks wins California Tip-pooling Case Appeal

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