Sixth Circuit Highlights The Difficulty of Calculating Work-Related Expenses Under the FLSA
Time 4 Minute Read
Sixth Circuit Highlights The Difficulty of Calculating Work-Related Expenses Under the FLSA
Categories: Class Actions

On March 12, 2024, the United States Court of Appeals for the Sixth Circuit reversed two separate district court decisions addressing how pizza delivery drivers should be reimbursed for their vehicle-related expenses under the Fair Labor Standards Act (FLSA).

The underlying cases involved minimum wage claims under the FLSA.  In both cases, the drivers alleged that their employers had not sufficiently reimbursed them for the expenses they incurred while using their personal vehicles to make deliveries, resulting in the employees earning less than the minimum wage.  One employer had reimbursed drivers 28 cents per mile, whereas the other employer had paid a flat-fee of $1.00-$1.50 per delivery.

Though the FLSA does not expressly require employers to reimburse employees for work-related expenses, the failure to fully reimburse employees for their personal expenses can violate the FLSA if these out-of-pocket expenses cause the employees’ weekly wages to fall below the minimum wage. 

This is generally referred to as the “free and clear” rule.   Specifically, FLSA regulations state that each employee’s minimum wages must be “paid finally and unconditionally or ‘free and clear’” of any “kick-back” to the employer.  29 C.F.R. § 531.35.  These regulations likewise provide that, if an employer requires an employee to “provide tools of the trade” for purposes of “the performance of the employer’s particular work,” the employer violates the FLSA if “the cost of such tools purchased by the employee cuts into the minimum or overtime wages required to be paid to him under the Act.”  Therefore, 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 Sixth Circuit addressed two different approaches to reimbursing expenses.  In the first case, the district court had agreed with the plaintiffs that the employer should use the standard IRS mileage rate (54 cents) to reimburse employees.  In the second case, the district court had sided with the employer and held that it could use a “reasonable approximation” of the costs.  The Sixth Circuit rejected both approaches.

In doing so, the Sixth Circuit started with the premise that the FLSA is an “Occam’s Razor” in that the FLSA “says that an employee is entitled to the minimum wage specified therein—period.”  From there, the Sixth Circuit rejected the use of the IRS mileage reimbursement rate because it could result in an underpayment or overpayment of the drivers’ actual expenses.  The Sixth Circuit noted that the IRS rate was a “nationwide average” that did not necessarily reflect each individual driver’s actual costs, which could vary by location, type of vehicle, and each driver’s specific driving habits.  The Sixth Circuit likewise rejected the employer’s attempt to use a “reasonable approximation” of the expenses because, by its very nature, an approximation would not fully reimburse employees for their actual expenses in all instances.

Though the Sixth Circuit acknowledged the difficulty of correctly calculating each driver’s actual expenses, the Sixth Circuit was not entirely sympathetic, writing: “[T]he employers themselves created this situation: first by paying their drivers the bare minimum wage; then by requiring them to provide their own vehicles to deliver pizzas on the defendants’ behalf; and finally by cutting it close (at least according to the allegations here) as to whether they have adequately reimbursed their drivers for the cost of providing those vehicles.  Remove any of those elements and these cases likely do not get filed.”

Despite rejecting both approaches, the Sixth Circuit declined to articulate the standard that the district courts should have used.  Instead, the Sixth Circuit suggested that the district courts should consider on remand whether some type of burden-shifting approach would be appropriate: “For example, the employee might present prima facie proof that a reimbursement was inadequate; the employer might then bear the burden of showing that the reimbursement bore a demonstrable relationship to the employee’s actual costs; and then the employee would bear the burden of proving the employer’s reasoning wrong.  Or perhaps such an arrangement might not be appropriate.”

It is unclear if other courts will endorse the Sixth Circuit’s approach.  However, for now, it is safe to say that this remains an open question in the Sixth Circuit, and employers should continue to watch this space for developments.

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