On 5 November 2019, a federal district court in Ohio issued a decision clarifying the law governing whether owners of 73 Papa John’s franchised locations violated the Fair Labor Standards Act (FLSA) by failing to adequately reimburse their delivery drivers for expenses incurred in using their own vehicles to complete deliveries.
In deferring to the Department of Labor (DOL) Field Operations Handbook, the court held that where employees are paid at or close to minimum wage and they use their own vehicles to make deliveries, the proper measure of minimum wage compliance for pizza delivery drivers is to either:
(See Hatmaker v. PJ Ohio, LLC, 2019 U.S. Dist. LEXIS 191790 (S.D. Ohio Nov. 5, 2019)).
Synopsis of new guidance
The FLSA mandates that ‘[e]very employer shall pay to each of his employees who in any workweek is engaged in commerce or in the production of goods for commerce’ a statutory minimum hourly wage, which must be paid ‘finally and unconditionally’ or ‘free and clear’, pursuant to DOL regulations (see 29 U.S.C. § 206(a); 29 C.F.R. § 531.35).
‘[t]he wage requirements of the Act will not be met where the employee ‘kicks back’ directly or indirectly to the employer or to another person for the employer’s benefit the whole or part of the wage delivered to the employee.’ (29 C.F.R. § 531.35)
In Hatmaker, the court held that where a restaurant employee is paid at or close to minimum wage and uses his or her own vehicle to make deliveries on the job, the cost associated with delivering food is a ‘kickback’ to the employer, which must be fully reimbursed; otherwise, the employer will trigger a minimum wage violation.
The DOL has recognised the difficulty of maintaining records of a restaurant’s food delivery drivers’ actual expenses incurred in making deliveries by providing guidance on how to abide by the minimum wage laws in its Field Operations Handbook.Either:
The court reasoned that since the DOL regulation mandating that hourly wages be paid ‘free and clear’ does not provide a methodology for valuing expenses relating to using a vehicle for work, it is appropriate to rely on the DOL Field Operations Handbook guidance because it provides clear and useful rules for employees to track and employers to follow.
Granting the plaintiffs’ motion for partial summary judgment, the court held that the franchisees failed to pay their drivers the federal minimum wage, when the drivers used their own vehicles to complete deliveries and were paid at or close to minimum wage, without any expense reimbursement. Accordingly, the court held that as a matter of law, the proper measure of FLSA compliance in compensating pizza delivery drivers paid at or close to minimum wage is to either:
Employers’ bottom line
Restaurant employers offering delivery services have been given clear guidance as to how to comply with the FLSA federal minimum wage requirements when they pay their employees at or close to minimum wage. They must either:
For more insight on how courts are considering minimum wage compliance and expense reimbursement in the restaurant delivery context, see our 11 March 2019 alert: ‘Better ingredients, better pay?’ Courts to consider legality of Papa John’s reimbursement policy for delivery drivers.