1st Circuit.gifCo-authored by: Ariel Cudkowicz and Jessica Schauer Lieberman

On Friday November 9, 2012, the First Circuit Court of Appeals issued a decision interpreting two key Massachusetts wage and hour statutes,  Mass. Gen. Laws ch. 149 § 152A (the “Tip Statute”), which regulates gratuities, service charges, and tip pools, and Mass. Gen. Laws ch. 149 § 150, which provides for mandatory treble damages for wage violations.

As we previously reported in this Blog, the plaintiffs in Matamoros v. Starbucks Corporation are baristas who claim that Starbucks violated the Massachusetts Tip Statute by allowing shift supervisors to receive a share of tips deposited by customers in tip jars located at the store’s cash registers.  Under the Tip Statute, only wait staff and other employees who have “no managerial responsibility” are permitted to share in tip pools. 

The district court held that although shift supervisors spend the majority of their time serving customers, they possess managerial responsibility for purposes of the statute because they also perform duties such as directing employees to workstations, opening and closing the store, opening the store’s safe, and handling and accounting for cash.   The First Circuit affirmed, rejecting Starbucks’ attempt to distinguish the shift supervisors’ relatively minor supervisory duties from “management” and holding that even extraordinarily limited managerial responsibility prevents an employee from participating in a tip pool.  The Court based its decision on the language of the statue, stating that “‘[n]o’ means ‘no,’ and we interpret that easily understood word in its ordinary sense: “not any.”

The First Circuit also affirmed the district court’s grant of class certification, refusing to accept the defendant’s argument that a fundamental conflict existed within the class.  Starbucks asserted that approximately 450 of the 11,000 baristas included in the class had been promoted to the shift supervisor position and would be financially disadvantaged by a decision striking down the company’s current tip-sharing policy.  The Court held, however, that this conflict was not “so substantial as to overbalance the common interests of the class members as a whole” and was cured by the fact that “barista[s]-turned-shift supervisor” retained the right to opt out of the class. 

Finally – and most importantly for Massachusetts employers in general – the Court upheld the Commonwealth’s mandatory treble damages provision.  Prior to 2008, the Massachusetts Supreme Judicial Court (“SJC”) held that because treble damages are punitive in nature, they could only be assessed for wage violations if the employer’s actions were “outrageous, because of the defendant’s evil motive or his reckless indifference to the rights of others.”  The legislature subsequently amended the statue, making the treble damages mandatory and labeling them “liquidated damages.”  Starbucks argued that the mandatory nature of the multiple damages violated due process.  The First Circuit held that treble damages do not create the kind of due process concerns that are implicated by jury-awarded punitive damages.   The Court then went on to state that the legislature had characterized the damages as liquidated damages, which are not punitive in nature.  Courts in other contexts (such as the Fair Labor Standards Act) have held that liquidated damages act as a stand-in for interest and other incidental damages.

The First Circuit’s decision, particularly as it concerns the treble damages law, strikes a blow to Massachusetts employers.  There are no exceptions to the Massachusetts treble damages provision – it applies to virtually all wage violations, regardless of the employer’s good faith, and thus creates the potential for massive liability for even minor wage payment errors.  The Matamoros decision closes off one avenue by which employers might have attempted to escape the effect of this draconian provision.  However, the First Circuit’s decision may not be the end of the story.  First, Starbucks may seek rehearing or Supreme Court review.  Second, since the First Circuit based its decision solely on federal constitutional law, employers may still be able to attempt to invalidate the provision based on state due process principles.  The SJC’s decision in Goodrow v. Lane Bryant, which held that pre-2008 treble damages provision to be punitive in nature, provides some language that may support a challenge to the current version of the law, although it remains to be seen whether state courts will in fact take a different view from the First Circuit.