Pizza Delivery Drivers Entitled to Vehicle Expense Reimbursement

Takeaway: An appeals court ruled that pizza delivery drivers must be reimbursed for the cost of providing their vehicles for work, but it stopped short of adopting a specific mileage rate or calculation required by the Fair Labor Standards Act.

Federal courts—including, most recently, the 6th U.S. Circuit Court of Appeals—have ruled that pizza delivery drivers must be reimbursed for the cost of providing their vehicles for work under the minimum wage provisions of the Fair Labor Standards Act (FLSA). The 6th Circuit rejected employers’ arguments that only a reasonable approximation of these expenses must be paid.

The plaintiffs were delivery drivers for Battle Creek Pizza and Team Pizza. During the period at issue, the defendants paid each plaintiff a wage of $7.25, the statutory minimum, minus a tip credit. The defendants also required each plaintiff to provide their own vehicles for delivering pizzas. That caused each plaintiff to incur substantial expenses for gas, maintenance and insurance, along with depreciation. As reimbursement, Team Pizza paid one plaintiff $0.28 per mile driven on deliveries, while Battle Creek Pizza paid the two other plaintiffs $1 or $1.50 per delivery, depending on the time frame.

The plaintiffs, represented by the same law firm in each case, claimed that those reimbursements fell short of the plaintiffs’ expenses, thereby cutting into their statutory minimum wages. Instead, the plaintiffs argued, the defendants should have reimbursed them using the IRS standard mileage rate for business deductions, which for 2018 was $0.54 per mile.

The defendants countered that reimbursement in the amount of a reasonable approximation of the plaintiffs’ expenses was enough, as a matter of law, to comply with the FLSA. The district court in the case against Battle Creek Pizza agreed with the plaintiffs; the court in the case against Team Pizza agreed with the defendants, and each court certified its decision for interlocutory appeal. The 6th Circuit granted the parties’ petitions for review.

On appeal, the 6th Circuit considered the defendants’ position that an employer’s reasonable approximation of a delivery driver’s cost of providing their vehicle was always, as a matter of law, sufficient reimbursement for the purposes of paying minimum wages. The defendants based this argument on several regulations that describe the effect of expense reimbursements on employers’ compliance with the FLSA’s overtime and minimum wage requirements.

Under the FLSA’s overtime provisions, employers must compensate employees at an overtime rate of at least 1.5 times the employee’s regular rate for work hours in excess of 40 hours in a workweek. The regular rate is generally the employee’s hourly wage, with possible increases for certain types of additional earnings. Employer reimbursements may or may not count toward increasing the regular rate, depending on how they are calculated.

The defendants relied upon an FLSA regulation stating that an employer’s reimbursement of the actual or reasonably approximate amount of certain employee expenses, such as the cost of purchasing uniforms or certain travel expenses, will not count as part of the employee’s regular rate. The defendants thus inferred that a reasonable approximation of costs is sufficient reimbursement for all employer-benefiting expenditures under the FLSA.

The 6th Circuit rejected the defendants’ argument that this regulation applied to the minimum wage requirements of the FLSA. It reasoned that, when an employee’s hourly wage is the bare minimum wage, any underpayment of the cost of providing tools will cut into the employee’s minimum wages, even if done as part of a reasonable approximation.

At the same time, the 6th Circuit rejected the plaintiffs’ argument that they should be reimbursed using the IRS’s standard mileage rate for business deductions. It reasoned that the 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. In addition, the estimation of depreciation costs under the IRS rate is weighted toward newer vehicles, which tend to overpay drivers of older vehicles. It also noted that some vehicle models depreciate slower than other models do, and some vehicles get better gas mileage than others.

The 6th Circuit thus did not specify exactly how employers should reimburse pizza delivery drivers under the FLSA. The court noted that one possible solution would be for courts to adopt a burden-shifting regime in which employees might present prima facie proof that a reimbursement was inadequate under the FLSA, and then the employer would bear the burden of showing that the reimbursement bore a demonstrable relationship to the employees’ actual costs.

Thus, the 6th Circuit vacated the district courts’ orders and remanded for further proceedings.

Parker v. Battle Creek Pizza Inc., 6th Cir., Nos. 22-2119, 22-3561 (March 12, 2024).

Jeffrey Rhodes is an attorney with McInroy, Rigby & Rhodes LLP in Arlington, Va.