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Judge orders Starbucks to pay more than $100 million in back tips
A Superior Court judge ordered Starbucks Corp. on Thursday to pay its California baristas more than $100 million in back tips and interest that the coffee behemoth had 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.
Cowett said the practice was a violation of a state law that prohibits managers and supervisors from sharing in employee tips.
Starbucks 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 for 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.
"I 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 company has more than 11,000 stores nationwide.
Starbucks 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.
The 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.
The company's stock has slid more than 50 percent since late 2006, when it was trading close to $40 a share. Starbucks shares closed up 3 cents at $17.53 on Thursday.
Starbucks earned more than $672 million on revenue of $9.4 billion during its fiscal 2007, which ended Sept. 30.
The 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.
"The decision today, in our view, represents an extreme example of an abuse of the class-action procedures in California's courts," O'Neil said.
The 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.
"Starbucks 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.