The Sixth Circuit Court of Appeals vacated the decisions of two federal district courts and remanded for further proceedings, without providing much guidance on what to do next. Parker v. Battle Creek Pizza, 2024 U.S. App. LEXIS 5858 (6th Cir. 2024) was poised to guide employers on the reimbursement amount for minimum-wage pizza delivery drivers who purchase “tools” for their job. A federal court in Michigan held the delivery drivers should be reimbursed using the IRS mileage rate of $.54 per mile. Parker v. Battle Creek Pizza, 600 F.Supp. 3d 809 (W.D. Mich. Apr. 28, 2022). A federal court in Ohio, on the other hand, held that employers should reimburse a reasonable approximation of the driver’s expenses. Bradford v. Team Pizza, 568 F.Supp. 3d 877 (S.D. Ohio, Oct. 19, 2021). The Sixth Circuit Court of Appeals agreed to hear the case.
A little background on employee reimbursements. Under the Fair Labor Standards Act (FLSA), employees must be paid at least a minimum wage of $7.25 per hour. Further, the FLSA provides that if an employer requires an employee to supply their own tools in the performance of the employer’s business, the cost of those tools cannot cut into the minimum or overtime wages the employee is to be paid. As stated by the court, “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 delivery drivers involved were paid minimum wage and drove their own vehicles and were responsible for gas, maintenance, insurance, etc. They were given a stipend of $.28 per mile driven on deliveries by one employer (Team Pizza), and $1.00-$1.50 per delivery by the other (Battle Creek Pizza), to cover the driver’s expenses.
The drivers argued the reimbursements from the employers fell well short of their expenses and that they should be paid at the IRS rate of $.54. The defendants countered that they were required only to provide a “reasonable approximation” of the expenses, and the reimbursement offered did just that.
The Sixth Circuit held neither party was correct. First, the court analyzed the “reasonable approximation” argument of the employers, declaring it was without legal support. The court found the inferences relied upon by the employers misapplied the provisions of the FLSA. On the other hand, the court stated the driver’s solution did not meet the FLSA’s requirements because the IRS rate did not accurately reimburse the drivers for their expenses, noting “that [the IRS] rate is a national 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 court wrote, “the statute entitles a minimum-wage employee to reimbursement of his actual costs incurred on his employer’s behalf. But the statute requires neither more nor less than that.” With that, the court vacated both lower court decisions and remanded for further proceedings.
Needless to say, this decision provides little guidance on the future of appropriate reimbursement for employees. Employee expense reimbursement is required not only under the FLSA in certain circumstances, but also under state laws (Washington, D.C., California, and Illinois, to name a few). Employers should contact their employment attorney to ensure their reimbursement programs are compliant with the FLSA and applicable state law.