Minimum-wage delivery drivers must be 100% reimbursed for using their own vehicles, 6th Cir. says – GWC Mag

Dive Brief:

• If an employer requires a minimum-wage driver to provide their own truck for deliveries, under the Fair Labor Standards Act, it must reimburse the driver for 100% of the cost of doing so, the 6th U.S. Circuit Court of Appeals held March 12 in Parker v. Battle Creek Pizza, Inc.
• Pizza delivery drivers for a Michigan restaurant and a Domino’s franchise in Ohio, who were all paid a minimum wage, filed separate lawsuits over they way their employers reimbursed them for costs they incurred using their vehicles for work — including for gas, maintenance, mileage and depreciation, according to court documents.
• Siding with the drivers, a federal district court in Michigan agreed they should be reimbursed using the IRS’s mileage rate. However, an Ohio court found the employers properly reimbursed the drivers using a “reasonable approximation” of their expenses. The 6th Circuit said both standards were wrong, vacated the decisions and sent the cases back for other approaches to be considered.

Dive Insight:

Given the pandemic-led explosion of delivery services over the past few years, the reimbursement issue is likely a concern for many businesses. Employers should also keep in mind that although the 6th Circuit ruling specifically applies to those in Michigan, Ohio, Kentucky and Tennessee, it puts employers elsewhere on notice about their approaches, particularly as other courts are likely to address the issue.

Under the law, subject to exemptions not relevant here, the FLSA requires employees to pay each employee a minimum wage of $7.25 an hour, the 6th Circuit pointed out. U.S. Department of Labor regulations state that if an employer requires an employee to “provide the ‘tools of the trade,’” the employer violates the FLSA if the cost of these tools cuts into the employee’s minimum wage or overtime pay, the court added.

The bottom line: “If an employer requires a minimum wage employee to provide his own ‘tools’ for work, the employer must reimburse him for 100% of the cost of doing so,” the panel emphasized.

The employers’ argument for using a “reasonable approximation” standard comes from an FLSA provision governing how employers calculate certain employee expenses — such as purchasing a uniform — to determine the employee’s regular rate of pay, the 6th Circuit pointed out. The provision is meant to prevent an employee’s regular rate of pay from being unfairly inflated or deflated for purposes of calculating overtime, the court explained.

But the provision also states that amounts treated as reimbursements for calculating regular rate of pay do not count as wages for purposes of determining whether minimum wage has been paid, the 6th Circuit said. A “reasonable approximation” of reimbursement that ends up underpaying an employee for the costing providing tools most certainly would cut into the employee’s minimum wage and result in an FLSA violation, the court warned.

The drivers’ argument fared no better, the panel explained. For one, the IRS’s standard-mileage rate is a nationwide average, which tends to overpay drivers in states where gas taxes are relatively low (like Ohio) and underpay drivers where gas taxes are high (like California), the panel noted.

Also, according to one commentator, the IRS rate favors low-mileage drivers and disfavors high-mileage ones, like delivery drivers, the 6th Circuit added.

As for employers, there’s no legal rule barring them from making pizza delivery drivers provide their own vehicles, “and the defendants have greater knowledge than we do about any efficiencies that might create,” the judges said. They also acknowledged the difficulty in having to calculate a driver’s actual costs.

“But the risk of financial harm from borderline reimbursements — the risk, specifically, that even ‘reasonable approximation’ reimbursements might be inadequate ones for some employees — must fall solely on the employer,” the 6th Circuit emphasized.

One solution may be found in how courts analyze Title VII claims, where the Supreme Court has prescribed a burden-shifting regime, the panel suggested. 

For example, in FLSA cases like this, an employee might present prima facie proof that a reimbursement was inadequate. The employer could then respond by showing the reimbursement bore a “demonstrable relationship to the employee’s actual costs,” the 6th Circuit said. The employee would then have to show this reasoning was wrong.