by Michael Kun

How quickly can $87 million go up in smoke?

Pretty darned quickly, especially if you are referring to the $87 million that was awarded to plaintiffs and their attorneys in a tip-pooling class action against Starbucks in San Diego.

In Chau v. Starbucks (CA4/1 D053491 6/2/09), Jou Chau, a former Starbucks barista, brought a class action against Starbucks challenging the Company’s policy that permits certain service employees, known as shift supervisors, to share in tips that customers place in a collective tip box.
If you’ve ever been to a Starbucks, you know exactly where that tip box is. (And if you haven’t been to a Starbucks, then you must be new to the country. Welcome.)

Chau alleged the Company’s policy violates California’s Unfair Competition Law, Bus. & Prof. Code, § 17200, based on a violation of Labor Code section 351. After certifying a class of current and former baristas and conducting a bench trial, the trial court found Chau had proved his claim, and awarded the class $87 million in restitution, plus interest and attorney’s fees.

And now it’s gone.

Up in smoke that smells vaguely like soy latte.

A California Court of Appeal has overturned the decision, ordering the trial court to enter judgment in Starbuck’s favor.

The Court of Appeal concluded that applicable statutes do not prohibit Starbucks from permitting shift supervisors to share in the proceeds placed in collective tip boxes. The Court explained that the trial court’s ruling was improperly based on a line of decisions that concerns an employer’s authority to require that a tip given to an individual service employee must be shared with other employees. As the Court explained, the policy challenged in Chau presented the flip side of this mandatory tip-pooling practice as it concerned an employer’s authority to require equitable allocation of tips placed in a collective tip box for those employees providing service to the customer.

This one can be chalked up as a major victory not just for Starbucks, but for the entire hospitality industry, which has been hit with an epidemic of wage-hour class actions in California. To those who represent employers in these matters, congratulations must go out now only to Starbucks’ attorneys, but to Starbucks itself, for holding firm rather than paying an enormous settlement, as plaintiffs surely sought both before and after their trial court victory.

Now we can sit back and wait to see if the California Supreme Court wishes to hear the case, as plaintiff’s counsel will certainly request.

While it’s always a fool’s game to bet on what the California Supreme Court might do, the early read on this case is that it is not a matter that the Supreme Court will have interest in.