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The Arbol Cafe Question: The legal eagle chimes in
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In light of online allegations that Northern Liberties' Arbol Café was engaging in illegal practices in regards to tip sharing, we asked attorney, blogger and CP contributor David Snyder to offer his on-the-books legal perspective on controversy, which we posted about earlier today. His take after the jump.
Under Federal law, tips are the property of the employee absent an agreement to the contrary [29 C.F.R. § 531.52]. If Arbol Café does not have an agreement with its employees that allows it to keep all of the employees' tips, they may be running afoul of the law.
However, if such an agreement exists, Arbol Café's conduct is proper under Federal and PA labor law as long as they are paying their employees more than minimum wage. Federal and PA law prohibits employers from confiscating tips if employers rely on the tip credit to satisfy minimum wage [8 U.S.C. § 203(m); 43 P.S. § 333.103]. The rationale is that if the employer is allowed to avoid its minimum wage obligations because its employees receive compensation in the form of tips, the employer should not be permitted to share in those tips because such sharing could result in the employees receiving less than minimum wage.
For example, in the case of Platek v. Duquesne Club 961 F. Supp. 835 (W.D. Pa. 1995), a Pittsburgh-based dining club controlled a number of shares in a tip pool pursuant to the terms of a collective bargaining agreement, and the club distributed tips to certain management employees. Non-management employees sued the club, claiming that the tip-pooling arrangement violated their rights under the Fair Labor Standards Act to receive a full minimum wage. The court rejected the plaintiffs' argument, reasoning that because the employer paid them above minimum wage, the agreement affecting their right to these tips did not dip their salaries below it.
Here, it appears as though Arbol Café is paying its employees above minimum wage. As a result, and assuming Arbol Café has an agreement with its employees, their conduct is legal under Federal and PA labor law.
If Arbol Café was operating in New York or California, it would be a different story. Under California and New York state labor laws, owners and agents (e.g., management) are prohibited from participating in tip-pooling arrangements (see Cal. Labor Code § 351; NY Labor Law § 196-d). Pennsylvania, however, has no such law.
Based on the recent ruling in the California tip-pooling class action suit against Starbucks, a creative lawyer might argue that keeping all of the employees' tips violates PA's Unfair Trade Practices and Consumer Protection law. In Chou v. Starbucks Corp., No. GIC836925 (Cal. Super. Ct. Mar. 19, 2008), the plaintiffs claimed Starbucks unlawfully allowed shift supervisors to share in a portion of the tips left in tip jars. Initially, the plaintiffs alleged that this practice violated California's Labor Code § 351 and its Business and Professions Code § 17200, et seq., California's unfair competition law. In January, however, the plaintiffs dropped the Labor Code claim, leaving only the unfair competition claim. Commentators suspect the plaintiffs did this because the statute of limitations is longer on the unfair competition claim and/or because the unfair competition claim allows the case to be heard by a judge instead of a jury, which some lawyers prefer when dealing with technical violations of the labor code.
Last month, the judge ruled in favor of the plaintiffs, holding that Starbucks was held liable for over $100 million in damages. Starbucks plans to appeal.
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