“Better Ingredients, Better Pay?” – Courts to Consider Legality of Papa John’s Reimbursement Policy for Delivery Drivers

Executive Summary: Employers in the restaurant industry have seen an increasing trend of litigation over reimbursement policies for delivery drivers. For example, on February 12, 2019, three former delivery drivers for Papa John’s filed a putative class action lawsuit in the U.S. District Court for the Western District of Kentucky alleging Papa John’s failed to adequately reimburse its delivery drivers for “vehicular wear and tear, gas and other driving-related expenses.” In Hubbard et al. v. Papa John’s International, Inc., the plaintiffs allege Papa John’s reimbursement policy, which paid a flat fee “per delivery” (rather than the IRS mileage reimbursement rate), resulted in drivers earning less than the minimum wage mandated under Kentucky, Colorado, and Missouri law. Two plaintiffs in this case are also class members in a New York federal class and collective action, Durling et al. v. Papa John’s International, Inc., which alleges, among other claims, similar violations of the Fair Labor Standards Act (FLSA), and New York, Pennsylvania, New Jersey and Delaware law. That case is currently pending.

Specifically, the plaintiffs in Hubbard allege Papa John’s required its delivery drivers to “maintain and provide a safe, functioning, insured, and legally-operable automobile to make deliveries,” and they each made 3.5 deliveries per hour at an average trip length of six miles. In exchange, Papa John’s compensated them on an hourly basis, plus approximately $1.00 to $1.50 per delivery ostensibly to offset their vehicle costs. Using the lowest standard mileage reimbursement rate in effect by the IRS (IRS Rate) during the relevant time period (roughly 2014 to 2017) as an appropriate measurement for the “minimum deductible cost for operating an automobile for business purposes,” and taking into account the mileage and average deliveries per hour, the plaintiffs argue that their net wages fell below each state’s minimum wage. The plaintiffs further allege each statewide class will contain at least 1,000 class members—with damages exceeding $5 million.

Although FLSA claims were not asserted in Hubbard, pursuant to the FLSA’s “Kickback Rule,” an employer must pay minimum and overtime wages to non-exempt employees “unconditionally” and “free and clear” of reductions. For example, an employer’s requirement that an employee provide “tools of the trade” necessary to perform his or her work (for the benefit of the employer) will violate the FLSA if the costs of such tools reduce the employee’s wages below the minimum wage. “Tools of the trade” likely encompass a functional vehicle to enable a delivery driver to deliver food. Therefore, FLSA minimum wage considerations come into play often with restaurant employers who employ delivery drivers and require them to use their own vehicles to make deliveries.

Moreover, the FLSA does not explicitly require employers to reimburse expenses incurred in the performance of an employee’s job (if the employee still earns above the minimum wage); but several jurisdictions, such as California, Illinois, and the District of Columbia, require reimbursement of such expenses over and above wages. In these jurisdictions, employers must be especially careful in ensuring that necessary expenses incurred by employees are reimbursed. Regardless of state law, under the FLSA, if a vehicle is required to perform a job, employee-paid vehicle expenses that reduce a non-exempt employee’s minimum wage below the legally-required minimum, must be reimbursed in an amount that will yield, at least, the minimum wage. In the context of reimbursement of vehicle expenses for a delivery job, it is not necessary that the IRS Rate be used, and another rate may be used.

Employers’ Bottom Line:

Employers should evaluate whether to require non-exempt delivery drivers to use their own vehicles to make deliveries. If these delivery drivers are required to use their own vehicles, and state law requires reimbursement of employee-paid vehicle expenses, such expenses must be reimbursed. However, if state law does not mandate reimbursement of vehicle expenses, employers should still set an employee’s pay rate at an amount that ensures that the employee’s wages will not fall below the minimum wage when vehicle expenses are taken into account. In establishing this rate, the minimum wage; past company, industry and/or regional delivery data; and information regarding reasonable and generally accepted costs of vehicle maintenance, should be considered. In light of this evolving case law, employers should consider the effect of potential deductions and/or required equipment on their non-exempt workforce.

If you have any questions regarding this decision or other labor or employment law issues impacting employers in the restaurant industry, please contact the authors of this Alert, Rick Warrenrwarren@fordharrison.com, partner in our Atlanta office, Patrick Ryanpryan@fordharrison.com, partner in our Atlanta office, or Destiny Washingtondwashington@fordharrison.com, counsel in our Atlanta office. You may also contact any member of FordHarrison’s Restaurant Industry practice group or the FordHarrison attorney with whom you usually work.

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