On March 12, 2024, the Sixth Circuit federal court of appeals issued its decision on two lawsuits alleging that pizza companies under-reimbursed their delivery drivers. The decision charts a new course for businesses and these types of cases.
Background
For over a decade, pizza delivery drivers and companies have fought over how much companies need to pay their drivers for the use of the employees’ cars. Unfortunately, the law governing this situation—the Fair Labor Standards Act—is a complex web of law, regulations, agency guidance, and court decisions.
From our perspective (we represent pizza delivery drivers), companies have used this complexity to under-reimburse drivers. We’ve seen companies reimburse a straight amount per delivery, a per mile rate, or even at a percentage of sales. Rarely do these methods have anything to do with the drivers’ actual expenses, and, often the rates are half or less-than-half of the IRS rate.
The companies argue that the law lets them “reasonably approximate” the drivers’ expenses and pay that amount. Companies use this vague phrase to try to justify practically any type of reimbursement at any amount.
We have argued in court that the law’s ambiguity means that courts should rely on longstanding agency guidance. In this case, the guidance is in the Department of Labor’s Field Operations Handbook, which essentially says, if the employer hasn’t paid the drivers’ actual expenses, the court should use the IRS rate to measure the employer’s pay practice.
Courts have been all over the board on this issue. Some have sided with the companies’ theory, some have sided with the drivers, and some have adopted variations of each.
Last year, the Sixth Circuit took up two appeals, one from a court in Ohio that sided with a pizza company and one from a court in Michigan that sided with the drivers. We represent the workers in both cases, but the cases involve different defense lawyers and pizza companies. The Ohio case is called Bradford v. Team Pizza. The Michigan case is called Parker v. Battle Creek Pizza.
The Decision
On March 12th, the Sixth Circuit delivered its decision. Buckle up, it is a wild one.
First, the Court dismantled the companies’ argument that it can “reasonably approximate expenses.” We argued that the “approximation” concept was based on a misapplication of some regulations. The Court agreed.
Instead, the Court said that minimum wage isn’t based on an “approximation.” It needs to be paid “to the penny.” The Court also admonished the companies because they put themselves in this situation by barely paying minimum wage in the first place, forcing drivers to use their own cars (instead of buying their own), and then “cutting it close” on the reimbursement rate. The Court wrote “Remove any of those elements and these cases likely do not get filed.” From our view, that’s absolutely right.
Second, the Court rejected our argument that the relevant regulation is ambiguous because “cost” is undefined as it applies to a vehicle. Our view is that, with a uniform shirt or wrench, “cost” is unambiguous. But, when it comes to the complexity of vehicle expenses, we have argued that the term is ambiguous. The Court disagreed and seemed to assume everyone knows what “cost” means with respect to cars. That remains to be seen.
The Court also said that the longstanding agency guidance regarding the IRS rate was only an “enforcement policy” for the Department of Labor, so it wasn’t “interpretative guidance.” This is a little technical, but it means that it is not something that a Court must defer to under “agency guidance” principles.
The overall holding from the Court is that employers cannot “approximate” expenses. Instead, pizza companies must pay each employee’s actual expenses.
The disappointing part of the decision was that the Court offered no guidance on what to do when an employer doesn’t reimburse each worker’s actual expenses. At best, the Court seemed to recognize that the situation “might allow employers to lowball estimates of drivers’ costs and then leave it to them to prove those estimates wrong.” This, according to the Court “threatens to impair” minimum wage rights. But, other than recognizing that courts need to be mindful not to impose too much of a burden on employees, it didn’t say what courts are supposed to do.
Implications and Predictions
So, what does this all mean?
First, very few, if any, pizza companies reimburse each driver for his or her actual vehicle expenses. So, this decision poses a real problem for them both in terms of running their business and facing lawsuits. I wouldn’t be surprised if one or both of the companies involved in this case seek some kind of review of the decision.
Second, the decision seemingly forbids an employer from even being able to rely on the IRS rate as a safe harbor. In other words, prior to this decision, a pizza company could reimburse at the IRS rate and be safe from lawsuits. Now, not even that will work. And, any “over-reimbursement” could trigger overtime wage violations.
Our view is fairly consistent with the Court’s: employers should have been reimbursing actual expenses in the first place. But, if they don’t, then there must be a way to prove an employee’s damages. One way to do this is with the IRS rate. We will have to see how it all shakes out, but we don’t think this approach is off the table. In fact, the Court’s discussion of the DOL’s “enforcement policy” suggests that another kind of agency deference will apply, just later in a case (Skidmore, for the lawyers out there).
The decision is not the total victory we hoped for, but we are pleased with the overall result. In the end, the Court stripped away the pizza companies’ best defense that they used to try to justify even the worst reimbursement mileage rates. But, of course, we will have to see how it all plays out.
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Past results obtained by Biller & Kimble, LLC are no guarantee of future results. Each case or matter is different and must be judged on its own merits.