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Starbucks Sued For Alleged Phantom Tip Income


Because tips are usually paid in cash, they often go unreported on tax forms. Employees frequently see this as a huge benefit to working low-paying jobs in which tips are customarily included. Waiters and bartenders are the first two groups that usually come to mind as employees who rely heavily on their tips for their income. However, an employer that adds wages to an employee’s pay stubs, allegedly to make up for the unreported tips, is acting against the law. Particularly when it results in the employees receiving less than minimum wage for each hour that they work.

Such is allegedly the case for Starbucks employees. A recent lawsuit alleges the company discourages employees from reporting their tips. Instead, the employer adds a “phantom wage” to the employees’ pay stubs, allegedly to make up for the tips which are going unreported. According to the lawsuit, Starbucks allegedly adds 50 cents for each hour that the employees work to employees’ pay stubs and W-2 forms. The end result is that the employees are paid less than minimum wage for the work that they perform for the coffee giant.

Rather than having a system to determine or calculate the amount of tips that each employee receives, the complaint alleges that “Starbucks just makes up that phantom number out of thin air.” The lawsuit also alleges that the gourmet coffee company “willfully filed fraudulent information” to the IRS.

The class action lawsuit was filed in a federal court in Oregon. The plaintiffs are filing for claims under the federal Fair Labor Standards Act which specifically prohibits employers from deducting wages from an employee’s pay if that deduction brings the employee’s total hourly wage to less than minimum wage. According to the lawsuit, the deduction of the “phantom wage” on Starbucks employees’ pay stubs allegedly did just that.

The plaintiffs are seeking an injunction which would prevent Starbucks from ever again participating in these or similar illegal business practices. They are also seeking damages for wage and hour violations amounting to at least $5,000. Should the court decide to rule in their favor, such an amount would most likely be in addition to attorneys’ fees and costs. If the case is allowed to move forward and the plaintiffs are granted class action status, the total damages which Starbucks would have to pay would be dependent on how many employees choose to participate in the class. Most likely, all current and former employees of the coffee company within a certain time frame would be permitted a chance to join the class.

According to Jon Egan of Lake Oswego, an attorney representing the plaintiffs in the wage and hour lawsuit, Starbucks is not required by either Oregon state law or federal law to withhold taxes from unreported tips.

Far from feeling contrite about the issue, the company is defending their policy. Laurel Harper, a spokeswoman for Starbucks, has said that the company is “in full compliance with state and federal laws on how tips are taxed.”

he Chicago class action lawyers at the Chicago Overtime Law Center are investigating unpaid overtime claims by waiters and bus boys and other restaurant and hotel workers against national restaurant chains including Chipotle, Red Lobster, Olive Garden, Outback Steak House, Taco Bell, Starbucks, Burger King, Wendy’s and hotels for misclassifying employees as managers or assistant managers, forcing employees to work off the clock at business, failing to share all tips, erasing or altering time sheets or time records, pressuring workers not to report or record overtime, and otherwise failing to pay workers for overtime and other wages. If you are the victim these wage theft practices call us at (312) 869-4095 or contact us online.

The Chicago class action attorneys at the Chicago Overtime Law Center have three decades of experience fighting to help employees who are victims of wage, overtime and tip theft by their employers. We have a team of Chicago unpaid overtime lawyers who concentrate on prosecuting state and nationwide class action lawsuits. Our attorneys work out of Chicago and Oak Brook offices and pursue claims for workers all over the Chicago area including La Grange and Oak Lawn. We protect unpaid workers who haven’t received overtime throughout the Chicago area including in DuPage, Lake, McHenry, Kane and Cook Counties.

Our Waukegan, Rockford and Romeoville overtime lawyers are intimately familiar with the issues that arise during wage claim litigation, and we know the laws that govern overtime cases well. Many employers misclassify employees as being exempt from overtime laws and pay workers salaries instead of hourly wages in order to avoid paying them overtime. Some employers mistakenly classify employees as exempt and others intentionally do so in order to circumvent the law. In either case, workers do not receive the wages they should, and a lawsuit may be the only way to recover their earned wages.

The Chicago Overtime Law Center is based in Chicago, and represents clients throughout the country who have not been paid for the overtime hours that they worked. If you believe that you are owed overtime wages, contact one of our Chicago class action attorneys by phone at (312) 869-4095 or through our online form.