Hatmaker v. PJ Ohio, LLC

Decision Date05 November 2019
Docket NumberCase No. 3:17-cv-146
PartiesTammy Hatmaker, et al., Plaintiffs, v. PJ Ohio, LLC, et al., Defendants.
CourtU.S. District Court — Southern District of Ohio

Judge Thomas M. Rose


Pending before the Court are Plaintiffs' Motion for Partial Summary Judgment, ECF 116; and Defendants' Cross-Motion for Declaratory Summary Judgment. ECF 117. The two motions ask the Court to define the law that will govern the determination of whether Defendants are liable on Plaintiffs' federal and state minimum wage claims.

I. Background

This is a wage and hour case brought on behalf of pizza delivery drivers who work for Papa John's franchisees. Defendants own and operate 73 Papa John's locations in Ohio, Nevada, and North Carolina. See Third Amended Complaint, ECF 84, ¶ 60, citing Defendants' website, http://bldbrands.com/?page_id=58. Plaintiffs claim Defendants pay their drivers at-or close to-minimum wage. The drivers use their own cars to complete deliveries. Plaintiffs allege the cars cost money to purchase, maintain, and operate. Plaintiffs allege that because Defendants have not paid the drivers their actual expenses or the IRS standard business mileage rate, Defendants have failed to pay the drivers at least minimum wage. See, e.g., 29 C.F.R. § 531.35; see also DOL Handbook § 30c15(a).

Defendants required delivery drivers to maintain and pay for operable, safe and legally-compliant automobiles to use in delivering pizza and pay for the cost of a functioning cell phone to make deliveries and other equipment necessary to complete their job duties. Doc. 2-1, ¶¶ 10-11, Doc 2-2, ¶¶ 10-11, Doc. 2-3 ¶¶10-11.

Defendants required delivery drivers to pay for gasoline, oil and other fluids, vehicle parts, auto repair and maintenance, registration costs, licensing and taxes. Doc. 2-1, ¶ 12, Doc 2-2, ¶ 12, Doc. 2-3 ¶ 12. The delivery drivers' cars depreciated in value as a result of the work that was done for Defendants. Doc. 2-1, ¶ 12, Doc 2-2, ¶ 12, Doc. 2-3 ¶ 12. Further, Defendants required the delivery drivers to maintain auto insurance. Doc. 2-1, ¶ 12, Doc 2-2, ¶ 12, Doc. 2-3 ¶ 12. Defendants never attempted to calculate how much money delivery drivers were paying out of pocket and did not require delivery drivers to record or report expenditures for the automobiles, gasoline or other job-related expenses. Doc. 2-1, ¶¶ 14-15, Doc 2-2, ¶¶ 14-16, Doc. 2-3 ¶¶ 15-16. Defendants have neither tracked and paid for their delivery drivers' actual expenses, nor reimbursed their drivers at the IRS rate.

Plaintiffs allege that Defendants violate the Fair Labor Standards Act and state wage and hour laws by under-reimbursing the delivery drivers and that they have met their burden by use of Internal Revenue Service mileage rates. Defendants' position is that the Court shouldrequire drivers to prove by a preponderance of the evidence that, in any given workweek, the difference between their wages and their actual unreimbursed pizza delivery expenses was less than the applicable minimum wage in that workweek.

II. Standard

The standard of review applicable to motions for summary judgment is established by Federal Rule of Civil Procedure 56 and associated case law. Rule 56 provides that summary judgment "shall be rendered forthwith if the pleadings, depositions, answers to interrogatories, and admissions on file, together with the affidavits, if any, show that there is no genuine issue as to any material fact and that the moving party is entitled to a judgment as a matter of law." Fed. R. Civ. P. 56(c). Alternatively, summary judgment is denied "[i]f there are any genuine factual issues that properly can be resolved only by a finder of fact because they may reasonably be resolved in favor of either party." Hancock v. Dodson, 958 F.2d 1367, 1374 (6th Cir. 1992) (quoting Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 250 (1986)). Thus, summary judgment must be entered "against a party who fails to make a showing sufficient to establish the existence of an element essential to that party's case, and on which that party will bear the burden of proof at trial." Celotex Corp. v. Catrett, 477 U.S. 317, 322 (1986).

III. Analysis

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.... The DOL regulations require that the minimum wage be paid 'finally and unconditionally' or 'free and clear.'" Stein v. hhgregg, Inc., 873 F.3d 523, 530 (6th Cir.2017) (citing 29 U.S.C. § 206(a) and 29 C.F.R. § 531.35).

The "anti-kickback" regulation implementing the FLSA states:

Whether in cash or in facilities, "wages" cannot be considered to have been paid by the employer and received by the employee unless they are paid finally and unconditionally or "free and clear." The 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. This is true whether the "kickback" is made in cash or in other than cash. For example, if it is a requirement of the employer that the employee must provide tools of the trade which will be used in or are specifically required for the performance of the employer's particular work, there would be a violation of the Act in any workweek when the cost of such tools purchased by the employee cuts into the minimum or overtime wages required to be paid him under the Act. See also in this connection, § 531.32(c).

29 CFR § 531.35.

The anti-kickback regulation," prohibits any arrangement that "'tend[s] to shift part of the employer's business expense to the employees . . . to the extent that it reduce[s] an employee's wage below the statutory minimum.'" Mayhue's Super Liquor Stores, Inc. v. Hodgson, 464 F.2d 1196, 1199 (5th Cir. 1972). "The 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." 464 F.2d at 1199 (quoting 29 C.F.R. § 531.35); see also Ramos-Barrientos v. Bland, 661 F.3d 587, 594-95 (11th Cir. 2011) (quoting Mayhue's); Rivera v. Peri & Sons Farms, Inc., 735 F.3d 892, 898 (9th Cir. 2013) (requiring the employer to reimburse for travel and immigration expenses incurred before the employment relationship began because these expenses were "essential for the ...employment relationship to come to fruition."); also Martin v. Petroleum Sales, Inc., No. 90-cv-2453-4A, 1992 WL 439740, *15 (W.D. Tenn. Jul. 9, 1992) ("Wage payments must be made 'free and clear' and without 'kickbacks' to the employer or to another person for the employer's benefit. 29 C.F.R. 531.35. Such an attempt to shift part of the employer's cost of doing business [cash shortages] to the employee is illegal.") (citing Mayhue's, 464 F.2d at 1199).

In the pizza delivery context, the cost associated with delivering food for an employer is a "kickback" to the employer that must be fully reimbursed, lest a minimum wage violation be triggered. See, e.g., Perrin v. Papa John's Int'l, Inc., 114 F. Supp. 3d 707 (E.D. Mo. July 8, 2015); Graham v. The Word Enters. Perry, LLC, No. 18-cv-0167, 2018 WL 3036313, *4 (E.D. Mich. Jun. 19, 2018) ("An example of such an expense are tools of the trade that the employee must provide which is required to perform the job, such as a personal car that an employee operates to make pizza deliveries."); Ke v. Saigon Grill, Inc., 595 F.Supp.2d 240, 258 (S.D.N.Y. 2008) (holding that deliverymen's bicycles and motorbikes were "tools of the trade," such that costs related to those vehicles had to be reimbursed by the employer where deliverymen otherwise earned minimum wage).

Defendants counter that the IRS rate merely is the maximum safe harbor rate that the IRS permits taxpayers to use in computing deductions from taxable income. According to Defendants, the IRS rate is nothing more than a cap on deductible expense for federal income tax purposes - a ceiling on tax deductions under the Internal Revenue Code, not a floor for reimbursements under the Fair Labor Standards Act.

As a general principle, employers are not permitted to "guess" or "approximate" aminimum wage employee's expenses for purposes of reimbursing the expenses. This would result in some employees receiving less than minimum wage, contrary to the FLSA mandate. Instead, as a general proposition, the FLSA requires employers to pay back the actual expenses incurred by the employees.

In the pizza delivery driver context, however, determining and maintaining records of each employee's actual expenses is a cumbersome task for the employer. The Department of Labor addressed this in its Field Operations Handbook, by giving employers a choice in order to ease their burden: either (1) keep records of delivery drivers' actual expenses and reimburse for them or (2) reimburse drivers at the IRS standard business mileage rate:

30c15 Car expenses: employee's use of personal car on employer's business.
In some cases it is necessary to determine the costs involved when employees use their cars on their employer's business in order to determine minimum wage compliance. For example, car expenses are frequently an issue for delivery drivers employed by pizza or other carry-out type restaurants.
(a) As an enforcement policy, the IRS standard business mileage rate found in IRS Publication 917, "Business Use of a Car" may be used (in lieu of actual costs and associated recordkeeping) to determine or evaluate the employer's wage payment practices for FLSA purposes. The IRS standard

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