Starbucks Ordered to Pay Back Tips

Bill Bumpus's picture

Friday March 21, 6:51 am ET

By Chelsea J. Carter, Associated Press Writer


Judge Orders Starbucks to Pay More Than $100 Million in Back Tips
SAN DIEGO (AP) -- A Superior Court judge on
Thursday ordered Starbucks Corp. to pay its California baristas more
than $100 million in back tips and interest that the coffee chain paid
to shift supervisors.

San Diego Superior Court Judge Patricia Cowett
also issued an injunction that prevents Starbucks' shift supervisors
from sharing in future tips, saying state law prohibits managers and
supervisors from sharing in employee gratuities.

spokeswoman Valerie O'Neil said the company planned an immediate appeal
of the ruling, calling it "fundamentally unfair and beyond all common
sense and reason."

The lawsuit was filed in October 2004 by Jou
Chou, a former Starbucks barista in La Jolla, who complained shift
supervisors were sharing in employee tips.

The lawsuit gained
ground in 2006 when it was granted class-action status, allowing the
suit to go forward for as many as 100,000 former and current baristas
in the coffee chain's California stores.

It was not immediately clear how many current and former employees are affected by the ruling.

feel vindicated," Chou said in a written statement released by
attorneys. "Tips really help those receiving the lowest wages. I think
Starbucks should pay shift supervisors higher wages instead of taking
money from the tip pool."

California is Starbucks' largest U.S.
market, with 2,460 stores as of Jan. 8, the latest count available. The
Seattle-based company has more than 11,000 stores nationwide.

employs more than 135,000 baristas in the U.S. The company did not
immediately respond to a request for a head count in California.

judgment comes as Starbucks is struggling to revive its U.S. business,
where store traffic has slipped amid a sagging economy, rising energy
and dairy costs, and growing competition from cheaper rivals.

company's stock has slid more than 50 percent since late 2006, when it
was trading close to $40 a share. Starbucks shares rose 3 cents to
$17.53 Thursday.

Starbucks earned more than $672 million on revenue of $9.4 billion during its 2007 fiscal year, which ended Sept. 30.

judge ordered Starbucks to pay $87 million in back tips, plus interest
of $19 million, bringing the total judgment to about $106 million.

The company said it planned to ask the court to stay the ruling while the appeal is pending.

decision today, in our view, represents an extreme example of an abuse
of the class-action procedures in California's courts," O'Neil said.

coffee company also took issue with the brevity of the judge's ruling,
which was only four paragraphs, saying she failed to address the
unfairness to shift supervisors.

"This case was filed by a single
former barista and, despite Starbucks request, the interests of the
shift supervisors were not represented in litigation," O'Neil said.

But attorney Laura Ho, who tried the baristas case, said the court's verdict follows state law.

illegally took a huge amount of money from the tip pool to pay shift
supervisors, rather than paying them out of its own pocket. The court's
verdict rightfully restores that money to the baristas," Ho said.

AP Business Writer Elizabeth M. Gillespie in Seattle contributed to this report.


Bill Bumpus's picture

Starbucks to Appeal

Starbucks to Appeal Tip-Sharing Ruling

Friday March 28, 7:47 pm ET

Starbucks to Appeal Tip-Sharing Ruling That It Pay Baristas $100M, Calls Ruling Unfair

SEATTLE (AP) -- Starbucks Corp. plans to
appeal a San Diego Superior Court ruling last week that ordered the
coffee chain to compensate California baristas for tips they shared
with shift supervisors.

ruling would take away the right of shift supervisors to receive the
tips they earn for providing superior customer service," said Chief
Executive Howard Schultz, in a voicemail message to employees Wednesday
night. "I want you to know that we strongly believe that this ruling is
extremely unfair and beyond reason."

In the message, a transcript
of which was released by Starbucks, Schultz said the media "grossly
mischaracterized" the coffee chain's standard practice of allowing
shift supervisors to share in tips left for baristas.

"We would
never condone any type of behavior that would lead anyone to conclude
that we would take money from our people," he said.

Schultz vowed
that the company would appeal the ruling and defend itself against two
similar lawsuits filed this week in Minnesota and Massachusetts.

In a separate statement Thursday, Starbucks said there is no money to be "refunded or returned from Starbucks."

California lawsuit was filed in 2004, and was granted class-action
status in 2006. Last week, San Diego Superior Court Judge Patricia
Cowett ordered Starbucks to pay baristas more than $100 million in back
tips and interest, saying state law prohibits managers and supervisors
from taking a cut from the tip jar. A hearing is set for May 1 before
Cowett on how the California tip money should be distributed.

responded in the statement that "shift supervisors are not managers and
have no managerial authority," and customers don't differentiate
between the supervisors and baristas when they tip.

Cowett also
issued an injunction preventing Starbucks' shift supervisors from
sharing in future tips, but Starbucks spokeswoman Valerie O'Neil said
it would not comply with that order while it appeals the court decision.

Shares of Starbucks fell 57 cents, or 3.2 percent, to close at $17.05.