Matamoros v. Starbucks: First Circuit Affirms $14 Million Judgment for Violation of the Massachusetts Tips Act

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Last week, in Download Matamoros et al v Starbucks Corporation, the First Circuit Court of Appeals affirmed decisions of the District of Massachusetts (Hon. Nathanial M. Gorton), granting class certification to a group of Starbucks baristas and awarding damages in excess of $14 million under Massachusetts’ Tips Act. The decision is a blow to Massachusetts employers like Starbucks that face dramatically increased exposure for wage and hour violations in light of Massachusetts’ mandatory treble damages law, which the First Circuit upheld against constitutional challenge.

The Tips Act prohibits tip pooling among wait staff employees and non-wait staff employees, and defines a wait staff employee as a person who serves goods or beverages directly to patrons or clears patrons’ tables, works in a restaurant or similar facility, and has “no managerial responsibility.” Defending its policy of pooling tips among baristas and shift supervisors, Starbucks argued that there was a difference between “supervision” and “management,” and its shift supervisors—who spent 90% of their time serving customers and only about 10% of their time directing the work and “[running] the shift”— did not have “managerial responsibility.” Considering that the current version of the Tips Act replaced a “primary duty test” similar to what Starbucks advocated, and that the Massachusetts Attorney General’s Fair Labor and Business Practices Division had issued an Advisory stating that restaurant “shift supervisors” possess “managerial responsibility” and are therefore not “wait staff,” Starbucks had an uphill battle. Citing the legislative history, the Advisory, and the plain language of the statute, the First Circuit held that the statute prohibits tip pooling among employees with even a modicum of “managerial responsibility,” and that Starbucks’ policy of tip pooling among baristas and shift supervisors therefore ran afoul of the Tips Act.

Turning to the issue of class certification, the Court also rejected Starbucks’ challenge to the adequacy of representation.  Starbucks argued that the designated class representatives, baristas, could not protect the interests of those class members who were promoted to the position of shift supervisor at some point during the class period and who therefore would be financially disadvantaged if Starbucks’ tip pooling policy were declared unlawful. The Court dismissed this argument, reasoning that “perfect symmetry of interest” was not required and that, to forestall class certification, “the intra-class conflict must be so substantial as to overbalance the common interests of the class members as a whole.”

Perhaps most noteworthy about this decision for Massachusetts employers is the Court’s analysis of the treble damages provision of the Massachusetts Wage Act, which increased the judgment against Starbucks significantly. In 2008, the Massachusetts legislature amended the wage and hour statute, making treble damages for Wage Act violations mandatory and labeling them “liquidated damages.” Under the previous version of the statute, awards of treble damages were discretionary, and depended on a finding of an employer’s outrageous conduct.  Citing the Supreme Court’s decision in State Farm Mutual Automobile Insurance Co. v. Campbell, Starbucks argued that, because these damages were mandatory and not based upon proof of reprehensibility, they deprived Starbucks of due process. The First Circuit rejected this argument too, holding that State Farm was not controlling because the damages were liquidated damages, not punitive damages, and were designed to compensate workers whose pay had been unlawfully withheld.

Since 2008, the mandatory treble damages provision of Massachusetts’ Wage Act has raised the stakes significantly for even relatively minor wage payment violations, regardless of whether the employer acted in good faith. After Matamoros, employers that violate the Massachusetts Wage Act should not expect to find relief from its harsh provisions in the courts.

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