Wage Hour Class Actions Brew At Starbucks
May, 2008
Introduction
Wage hour class actions can result in multi-million dollar losses for employers. Each case teaches a lesson.
Starbucks, for example, has been the recent target of at least four class action lawsuits for alleged FLSA wage hour violations. The proverb “no good deed goes unpunished” may have applied in at least two of the cases, as Starbucks might have been attempting to balance supervisor and employee considerations. And, one of those cases cost Starbucks over $100 million.
Failure to Enforce a Reclassification
A: Not if their managers continue to treat the employees as exempt.
In March 2008, in one of the four cases mentioned, Starbucks learned the above lesson the hard way and it settled a class action lawsuit involving former assistant managers. Starbucks had reclassified the assistant managers from exempt employee classification (i.e., from not entitled to overtime pay) to non-exempt (i.e., entitled to overtime pay). But, Starbuck’s failed to follow through by telling its managers to comply with the reclassification and pay overtime to the newly reclassified non-exempt employees in order to enforce the reclassification.
One employee who had been reclassified as non-exempt complained that, despite the reclassification, he still was required by management to perform work in excess of 40-hours per week, without receiving overtime pay. He also alleged that he had to attend promotional celebrations after normal work hours for which he was not compensated. Other assistant managers joined in the lawsuit and a class action was brought.
The assistant managers alleged that their primary duties included non-supervisory work such as waiting on customers, making drinks for customers, serving customers, operating the cash register, ensuring that the store was kept clean and actually cleaning store equipment. As such, the assistant managers claimed that they should have been considered non-exempt and had been paid for overtime work. After 3 years of litigation, over 350 assistant managers agreed to settle their case. The settlement agreement was filed in federal court under seal. Therefore, the amount that the former assistant managers received as a result of the settlement is unknown. However, the court documents do state that the amount of money which the plaintiffs received was more favorable to them than it was to their attorneys. No doubt, this meant that the plaintiffs recovered a sizable amount and it was a costly settlement for Starbucks.
$100 Million Tip Pool
In February, 2008, in another class action lawsuit against Starbucks, a California state court judge ordered Starbucks to pay $86.7 million, plus interest, to its non-supervisory employees (known as “baristas”). With interest, this judgment is estimated to exceed $105 million! The lawsuit alleged that company policy required baristas to share their “tip pool” with their supervisors at Starbucks in violation of California law. The company maintains that its tip pool policy is equitable because it rewards both groups of employees and says that it will appeal the court’s order.
Two Other Pending Class Actions
Starbucks’ troubles are not over. It also is facing class actions in San Francisco, where 2,500 assistant managers allege that they were forced to work overtime without pay. In West Palm Beach, Florida, 900 store managers allege that they performed essentially the duties of baristas and should have been paid overtime.
Practice Tips
Fear of the wave of FLSA class action lawsuits has caused some companies to re-examine the FLSA classification of their exempt employees. In this regard, the Starbucks cases provide a valuable practice tip: Old habits die slowly. Despite reclassification by the company, managers may, in practice, continue to place the same demands on reclassified employees, but fail to pay overtime. Conscientious employees sometimes will maintain their old non-exempt mentality, but some may file lawsuits.
Additional Practice Tips:
- Determine whether exempt employees primarily are performing job functions that would cause them to be classified as non-exempt i.e., eligible for overtime pay.
- Do not let newly reclassified non-exempt employees perform their job functions without paying overtime.
- Remind managers and supervisors that they must report employees’ overtime hours for pay.
- Telling an employee not to work overtime hours is not enough.
- Even posting a no-overtime-without-pay-policy may not be enough. A pattern or practice of acquiescence with off-the-clock work may violate the Fair Labor Standards Act.
- Observe state wage and hour laws which may impose additional or different legal requirements.
Call Jim Barber for further advice at (312) 606-7712 or e-mail him at jbarber@clausen.com.
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