Many employees, regardless of industry or location, incur regular expenses related to their jobs - i.e. purchasing tools, cleaning uniforms, and for travel. Employers and employees alike often take expenses like these for granted; however, major employers around the country are learning the consequences of leaving such expenses in the charge of employees. As elaborated below, pizza titans Domino's and Pizza Hut are each facing litigation brought by classes of delivery drivers who incur expenses that reduce their take home pay to levels below the minimum wage, in alleged violation of the Fair Labor Standards Act ("FLSA").
The FLSA establishes minimum wage, overtime pay, recordkeeping, youth employment, and other standards governing employees in the private and public sectors. One important corollary of the FLSA's minimum wage provisions is known as the "kickback rule," which holds that an employee's compensation must meet applicable minimum wage requirements "free and clear" of any reductions.
Kickbacks may occur in two forms: first, when an employer makes a deduction from an employee's wages to pay for an expense that benefits the employer (i.e. equipment, gas, travel, etc.), or second, when an employer fails to reimburse an employee for those expenses. If the net effect of an employer's deductions or failure to reimburse for expenses causes an employee's compensation to fall below the minimum wage, the employer may be found in violation of the FLSA.
The FLSA's kickback rule is the subject of recent class action litigation against major restaurant franchisees, among others. Domino's franchisees in Georgia and California are currently fighting two separate lawsuits involving employees of over 150 stores, while franchisees of competitor, Pizza Hut, are engaged in similar litigation in several states. In each case, delivery drivers were paid a standard reimbursement rate per trip, regardless of actual miles driven, with the net effect being the reduction of the employees' effective wage rate to below the minimum wage when repeated longer trips were made. If the reimbursement policies of the franchisees are found to have been in violation of the FLSA, they would be forced to pay significant monetary damages.
The decisions forthcoming in these cases have wide-reaching consequences. An employer should be particularly vigilant with respect to work-related expenses incurred by employees who are paid at or near the minimum wage. Courts have defined "expenses for the benefit of the employer" broadly, leaving employers exposed if they try and cut corners. Additionally, it is important to note that employees cannot directly or indirectly waive their right to receive the minimum wage. In light of these cases, employers should work to evaluate current policies and, if necessary, develop systems to account for and reimburse eligible expenses. Likewise, employees should track expenses to ensure that their FLSA rights are being maintained.
The legal team at SFMS has substantial experience litigating labor and employment matters. If you have any questions regarding this subject or this posting, please contact Valerie Chang (email@example.com) or Alec Berin (firstname.lastname@example.org). We can also be reached toll-free at (866) 540-5505.
Shepherd Finkelman Miller & Shah, LLP is a law firm with offices in California, Connecticut, Florida, New Jersey, New York, Pennsylvania and Wisconsin. SFMS is also an active member of Integrated Advisory Group (www.iaginternational.org), which provides us with the ability to provide our clients with access to excellent legal and accounting resources throughout the globe. For more information about our firm, please visit us at www.sfmslaw.com.