Written by Fiona W. Ong from Shawe Rosenthal LLP on March 29, 2024
The Fair Labor Standards Act requires employers to pay non-exempt employees at least the minimum wage, free and clear. And if the employer requires the employee to provide their own “tools” for work, the employer must reimburse the employee for 100% of the cost. But how should that cost be calculated?
In the consolidated appeal of Parker v. Battle Creek Pizza, Inc., delivery drivers were paid minimum wage and were required to use their own vehicles for work. In one case, the federal district court agreed with the drivers that they should be reimbursed using the IRS’ standard-mileage rate, while in the other case, another federal district court agreed with the employer that a “reasonable approximation” of the drivers’ costs was permissible. The U.S. Court of Appeals for the Sixth Circuit disagreed with both.
The Sixth Circuit noted that the “reasonable approximation” of expenses principle derives from regulations governing the computation of overtime, not the payment of minimum wage. Moreover, a “reasonable approximation” that amounts to an underpayment of the employee’s costs “would violate” the FLSA’s minimum wage mandate where the employee makes only the minimum wage. The Sixth Circuit also rejected the employers’ argument that the calculation of actual costs is “impossible,” noting that the employers themselves created the situation: by paying the drivers the minimum wage, by requiring them to provide their own vehicles, and by cutting it close on the reimbursement. The Sixth Circuit observed that the removal of any one of these three elements would obviate the claim, and further stated, “the risk of financial harm from borderline reimbursements – the risk, specifically, that even ‘reasonably approximate’ reimbursements might be inadequate ones for some employees – must fall solely on the employer.”
The Sixth Circuit similarly rejected the drivers’ request to use the IRS standard-mileage rate, noting that it, too, was an approximation. The IRS’ rate is a nationwide average that tends to overpay drivers in states with low gas taxes and underpay drivers in states with high gas taxes. It also weights depreciation costs towards newer vehicles, and favors low-mileage drivers.
Rather, the Sixth Circuit held that minimum wage employees like the drivers must be reimbursed for their actual costs. It also acknowledged the difficulty in calculating such costs. Unfortunately for employers, the Sixth Circuit declined to provide any specific definitive guidance on how to do so. It did, however, suggest that a burden-shifting framework, similar to the one used in discrimination cases, might be appropriate – or it might not. But it left the determination of how to make such a calculation to the parties and the district courts to figure out.
