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Legal Updates

First Circuit Holds That Massachusetts Wage Act Precludes Shift Supervisors From Participating In Tip Pools

The U.S. Court of Appeals for the First Circuit has ruled that under Massachusetts law, restaurant employees who hold any managerial responsibility may not share in wait-staff “tip pools” –  i.e., arrangements in which tips are combined and shared among employees who directly serve customers.  In the same case, the First Circuit rejected a challenge by the employer to the constitutionality of the mandatory treble damages provision of the Massachusetts Wage Act, M.G.L. c. 149, §§ 148, 150 (the “Wage Act”).

In Matamoros v. Starbucks Corporation, the First Circuit concluded that Starbucks Corporation (“Starbucks”) had violated M.G.L. c. 149, § 152A (the “Tips Act”) by permitting shift supervisors holding some managerial responsibilities to participate in tip pools with baristas.  The court also affirmed an award of treble damages to the plaintiffs under the Wage Act, concluding that the Wage Act’s mandatory trebling provision did not violate Starbucks’s federal due-process rights.

Although Matamoros involved a restaurant employer, the Tips Act covers employees in any industry who directly serve patrons and customarily receive tips.  Thus, all employers in Massachusetts should ensure that their tip practices comply with the statute.  Further, employers should heed the First Circuit’s upholding of mandatory treble damages under the Wage Act, which applies to all wage payments (not just to tips).

Factual Background

Matamoros involved a proposed class of more than 11,000 current and former Starbucks baristas.  The complaint alleged that Starbucks violated the Tips Act by allowing shift supervisors to receive a share of tips.  Because tips are a form of wages under Massachusetts law, the complaint further alleged that this violated the Wage Act, entitling the plaintiffs to an award of treble damages, attorneys’ fees, and litigation costs.

The Tips Act provides that employers can create tip pools only for restaurant “wait staff employees,” “service employees” (i.e., non-restaurant employees who directly serve patrons and customarily receive tips), and “service bartenders.”  “Wait staff” and “service” employees are defined, in part, as employees who hold “no managerial responsibility.”  (Emphasis added.)  By contrast, the Tips Act is silent as to whether a “service bartender” (defined as an employee who prepares beverages to be served by another employee) may hold managerial responsibility.

The issue in Matamoros was whether Starbucks shift supervisors have “no managerial responsibility” and therefore may be considered “wait staff employees” permitted to share tips with baristas.  Shift supervisors are hourly employees typically promoted from within the ranks of baristas.  They report to store managers and assistant managers and do not have authority to hire, fire, discipline, or promote other employees.  However, shift supervisors open and close stores, handle and account for cash, and ensure that baristas take scheduled breaks.

The Matamoros plaintiffs moved for partial summary judgment on their Tips Act claim, arguing that shift supervisors were not permitted to share in tip pools because they had some managerial responsibility.  The District Court allowed the motion and, after granting class certification, awarded the plaintiffs $14 million in damages.  This reflected the tips that had been allocated to shift supervisors during a designated period, as well as a trebling of the tips allocated on or after July 11, 2008 (the date of an amendment to the Wage Act requiring such trebling).  Starbucks appealed to the First Circuit.

First Circuit’s Decision

The First Circuit affirmed the District Court’s decision, noting that under the plain language of the Tips Act, a wait staff or service employee must hold “no managerial responsibility.”  Emphasizing this point, the First Circuit stated, “No means no.”

In addition, the First Circuit cited an interpretive guidance of the Massachusetts Attorney General.  This guidance, the First Circuit explained, “states with conspicuous clarity that ‘[w]orkers with limited managerial responsibility, such as shift supervisors … do not qualify as wait staff employees.’”  In response to Starbucks’s contention that it was unfair to interpret the Tips Act so strictly, the First Circuit stated that this was a policy judgment legitimately made by the Massachusetts legislature.

Finally, the First Circuit rejected Starbucks’s constitutional challenge to the District Court’s damages award.  In this regard, Starbucks argued that the Wage Act’s mandatory treble damages provision violated its federal due-process rights by imposing punitive damages without requiring a finding of reprehensibility.  The First Circuit was not persuaded, concluding that the provision does not pose the same risks as affording a jury untrammeled discretion to award punitive damages in a civil tort case.

Recommendations For Employers

In light of Matamoros, Massachusetts employers are advised to:

 

  • Confer with employment counsel before implementing tip pools.  Although the Tips Act is specific in many respects, it is not completely clear as to some issues, such as whether an employer with both restaurant and non-restaurant operations must maintain separate tip pools for wait-staff employees, service bartenders and service employees or, conversely, may include all such employees within a single tip pool;
  • Carefully review current tip policies and practices and revise them as necessary to ensure that employees who hold any managerial duties do not participate in wait-staff or service–employee tip pools;
  • Ensure that if employees with managerial responsibilities need to be removed from existing tip pools, their regular compensation is adjusted, if necessary, to provide at least the minimum wage for all hours worked; and
  • Regularly audit compensation practices to ensure compliance with all other wage-and-hour obligations.  This is crucial in light of the First Circuit’s upholding of the Wage Act’s mandatory treble damages provision.

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Please contact us if you have any questions regarding the First Circuit’s Matamoros decision or any other wage-and-hour issues.  We regularly assist employers with such matters and would be happy to assist you.