Waters v. Pizza to You LLC, S.D. Ohio, No. 3:19-cv-00372, 5/7/21, is a case that involves delivery drivers who used their own vehicles to deliver pizzas for their employer. During the period at issue, the drivers were reimbursed $1 for each delivery, and that rate eventually was increased to $1.25. Given the average delivery radius, the reimbursement was less than the IRS business mileage rate, which was $0.54/mile. No actual vehicle expenses were tracked for making deliveries. The employer chose its reimbursement rate to match what other pizza companies paid. Remember, just because others are doing it does not make it right.
The Fair Labor Standards Act (FLSA) requires employers to pay an hourly minimum wage, which must be paid “finally and unconditionally” or “free and clear.”
The FLSA’s anti-kickback regulation provides:
Whether in cash or in facilities, “wages” cannot be considered to have been paid by the employer and received by the employee unless they are paid finally and unconditionally or “free and clear.” The wage requirements of the Act will not be met where the employee “kicks back” directly or indirectly to the employer or to another person for the employer’s benefit the whole or part of the wage delivered to the employee. This is true whether the “kickback” is made in cash or in other than cash. For example, if it is a requirement of the employer that the employee must provide tools of the trade which will be used in or are specifically required for the performance of the employer’s particular work, there would be a violation of the Act in any workweek when the cost of such tools purchased by the employee cuts into the minimum or overtime wages required to be paid him under the Act.
29 CFR § 531.35. In other words, an arrangement that shifts an employer’s business expense to an employee is a prohibited kickback to the extent it reduces an employee’s wage below the minimum wage.
The cost associated with delivering pizzas and other food is a business expense, and if paid by the employee is a kickback unless it is fully reimbursed. This is a problem if it results in some employees receiving less than the minimum wage after accounting for the kickback.
Historically, the Department of Labor’s Field Operations Handbook has recommended that employers either (1) keep records of delivery drivers’ actual expenses and reimburse them, or (2) reimburse drivers at the IRS standard business mileage rate.
But on August 31, 2020, the DOL published an Opinion Letter adopting the reimbursement standard urged by the pizza delivery industry, which is that employers need only reimburse a “reasonable approximation” of delivery drivers’ expenses. The Court found the DOL Opinion Letter vague, unhelpful, unpersuasive, and contrary to the DOL’s own guidance and prior interpretations. The Court applied the DOL Handbook standard, concluding that the IRS standard business mileage rate provides employers with a clear path to minimum wage compliance without the costs and administrative burdens of keeping records of their employees’ actual costs.
Employers may also choose to pay a wage well above the statutory minimum so reimbursement policies or practices will not affect whether employees’ receive the statutory minimum wage free and clear.