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Starbucks Facing Employment Class Action Lawsuit

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Portland, OR: Three ex-Starbucks employees have filed a wage and hour class action lawsuit alleging the coffee company adds a taxable "phantom wage" of 50 cents an hour in tips to paychecks, which results in some employees receiving less than the minimum wage. The lawsuit claims that Starbucks in is violation of the Fair Labor Standards Act (FLSA), which prohibits employers making deductions in employees pay that would result in those employees making less than minimum wage.

Entitled, Fredrickson, et al. v. Starbucks Corp., Case No. 13-cv-02041, U.S. District Court Oregon, Portland Office, the lawsuit, filed by Hannah Fredrickson, lead plaintiff, states that Starbucks discourages employees from reporting their tips. Further, the lawsuit claims, "Starbucks just makes up that phantom number out of thin air." Therefore, the lawsuit contends that Starbucks "willfully filed fraudulent information," in violation of federal tax law, by reporting the made-up tips in W-2 returns.

According to the class action, "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."

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.

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