Sixth Circuit Identifies “Dilemma,” but Not Solution for Calculating Workers’ Vehicle Expenses Under the Fair Labor Standards Act

In an opinion that raises as many questions as it answers, the Sixth Circuit foreclosed two methods of calculating how delivery drivers paid the minimum wage should be reimbursed for the costs associated with using their vehicles for work under the Fair Labor Standards Act (“FLSA”). Rejecting both the drivers’ assertion that they should be reimbursed using the mileage rate published by the IRS, and the employers’ argument that drivers should receive a “reasonable approximation” of their costs, the Sixth Circuit held in two consolidated appeals in Parker v. Battle Creek Pizza, Inc., Nos. 22-2119, 22-3561, 2024 WL 1068871 (6th Cir. Mar. 12, 2024), that drivers’ actual costs must be reimbursed to avoid a minimum wage violation and remanded both cases to their respective district courts with little guidance as to how to calculate those costs.

The FLSA requires employers to pay each employee a minimum wage “finally and unconditionally” or “free and clear” of any “kick-backs” to the employer. 29 C.F.R. § 531.35. In practice, this means that any supplies or tools that an employee needs to fulfill the responsibilities of their job cannot reduce their pay in a manner that brings their ultimate earnings below the minimum wage. In Parker, pizza delivery drivers who were paid the minimum wage (minus the “tip credit”) argued that the costs associated with using their own vehicles for delivering pizzas, such as gas, maintenance, insurance, and vehicle depreciation, resulted in their take-home pay falling below the required minimum wage.

The Sixth Circuit held that the FLSA means what it says: an employee is entitled to the minimum wage, not an “approximation.” Thus, the court rejected both the defendants’ and plaintiffs’ proposed methods for approximating the plaintiffs’ costs, and held that the FLSA obligates employers to reimburse employees’ actual costs incurred on their employers’ behalf to the extent those costs bring employees’ pay below the minimum wage.

The Sixth Circuit recognized the difficulties of accurately calculating the drivers’ costs and of placing too heavy a burden on plaintiffs to prove the impossible, but did not offer a clear solution to this admitted “dilemma.” The Sixth Circuit was also largely unsympathetic to the defendants, reasoning that they had themselves to blame by both deciding to pay drivers the bare minimum wage and requiring that drivers use their own vehicles.

The Sixth Circuit mused that “perhaps” a burden-shifting framework similar to that used in Title VII cases could be used to prove the amount of an employee’s difficult-to-calculate costs. In the court’s suggestion, the employee would present prima facie proof that a reimbursement was insufficient to bring the employee up to the minimum wage, the burden would shift to the employer to establish that “the reimbursement bore a demonstrable relationship to the employee’s actual costs,” and then the employee would bear the ultimate burden of “proving the employer’s reasoning wrong.” But the court did not define “demonstrable relationship,” and further remained ambivalent on whether such a framework would even be appropriate, instead leaving that to the district courts to figure out on remand.

Going forward, employers who utilize delivery drivers paid at or near the minimum wage—and particularly those in Kentucky, Tennessee, Michigan, and Ohio, which are the states in the Sixth Circuit—should be prepared to confront the issue of reimbursing the actual costs incurred by each employee individually, rather than relying only on general approximations. Until further guidance is provided, employers that are not willing to incur the significant investment of purchasing a fleet of delivery vehicles or substantially increasing wages might consider requiring employees to certify each week the amount of their actual costs and/or whether that amount differs from the employers’ approximation of their costs.

Stites & Harbison employment attorneys are keeping apprised of this developing area of law, including whether any courts adopt the Sixth Circuit’s suggested burden-shifting framework. Please contact your Stites & Harbison employment attorney with any questions regarding compliance with your wage-and-hour obligations.