Starbucks Faces FLSA Class Action Over ‘Phantom’ Wages
By Dominic Rivera
A class action lawsuit filed by three former Starbucks employees alleges that the coffee company adds a taxable “phantom wage” of 50 cents an hour in tips to paychecks, causing some employees to get less than the minimum wage.
According to lead plaintiff Hannah Fredrickson, Starbucks discourages employees from reporting their tips. She also claims, “Starbucks just makes up that phantom number out of thin air.” Because of this, the class action lawsuit contends that the company “willfully filed fraudulent information,” in violation of federal tax law, by reporting the made-up tips in W-2 returns.
The wage and hour lawsuit, filed in an Oregon federal court, alleges that Starbucks violates the Fair Labor Standards Act (FLSA), which prohibits deducting from an employee’s pay that would pull it below the minimum wage.
“Starbucks deducts amounts from its employees’ pay that reduce their paychecks below the minimum wage and/or overtime requirements. Its stated reason for the deduction is that the employees owe taxes on their tips, but that is false. Neither Oregon nor federal law require Starbucks to withhold taxes from unreported tips. The employees do not owe taxes on the tips, because their income is low enough that the withholdings from their regular wages are more than enough to meet their annual tax burden. Even if this were not the case, however, the employees would not have to pay any taxes on those unreported tips until the following April 15 (tax day). The FLSA requires employers to pay the minimum wage and overtime on payday, so the fact that the employees might receive a refund of these wrongfully deducted amounts (in many cases over a year later) does not eliminate the violation,” the Starbucks wage class action lawsuit states.
Fredrickson is seeking class certification, an injunction, and damages for wage and hour violations and $5,000 or the sum of actual damages incurred, whichever is greater, for providing false information on tax returns.
Starbucks, through a spokeswoman, said that the company’s current policy is in full compliance with state and federal laws on how tips are taxed.
The Starbucks Wage & Hour Class Action Lawsuit is Fredrickson, et al. v. Starbucks Corp., Case No. 13-cv-02041, U.S. District Court Oregon, Portland Office.
If you were not paid minimum wage or were the victim of another wage and hour violation, you may be able to pursue the compensation that you’re owed at no cost to you. Learn more and obtain a free case review at the Wage & Hour, Overtime Pay Class Action Lawsuit Investigation.
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One thought on Starbucks Faces FLSA Class Action Lawsuit Over ‘Phantom’ Wages
In 2015 they also began a partnership with spotify where all employees were told they are able to sign up free of charge to stream music as an employee. Later the charge for monthly service was deducted from our pay which only showed as some type of pay we received so we were lied to. It was not free we were taxed on it as if it were a type of tip income. Also tip income was collected and divided evenly but was always different from the amount on pay stubs we were taxed on.