Seyfarth Synopsis: In March 2024, the Sixth Circuit in Parker v. Battle Creek Pizza, Inc. announced a new standard for assessing vehicle reimbursements under the FLSA. The Sixth Circuit rejected both employees’ requests for the use of the IRS rate and employers’ use of a reasonable approximation of expenses, instead requiring the use of actual expenses. A recent decision from the Northern District of Alabama indicates that Parker may have limited import outside of the Sixth Circuit.

Delivery drivers and employers have long disagreed on how vehicle expenses should be calculated for determining whether the driver’s effective pay is above the $7.25 minimum wage set by the FLSA. Drivers have typically argued that vehicle expenses should be reimbursed using the IRS standard rate, which is $0.67 per mile for 2024. Employers, on the other hand, have generally argued that the IRS rate is not required, and that a reimbursement is compliant with the FLSA, as long as it is a “reasonable approximation” of the driver’s expenses. Although the DOL issued an opinion letter on the issue in 2020, caselaw on the issue has been sparse, consisting largely of scattershot district court opinions.

The Sixth Circuit’s Parker Decision

At least that was the case until the Sixth Circuit weighed in on the issue in Parker v. Battle Creek Pizza, Inc., 95 F.4th 1009 (6th Cir. 2024). In Parker, the Sixth Circuit charted a path that few expected. Rather than endorse the use of the IRS rate or a reasonable approximation of expenses, the Sixth Circuit concluded that the minimum wage calculation must be made through assessment of the driver’s actual expenses. Given the novelty of the Sixth Circuit’s holding, there has been significant uncertainty about what, if any, impact the Parker court’s decision would have outside of the Sixth Circuit.

The Allen Decision

In one of the first decisions addressing Parker, the district court in Allen v. PJ Cheese, Inc., No. 2:20-cv-1846-RDP, 2024 WL 2884170 (N.D. Ala. June 7, 2024), signaled that predictions of a wholesale sea change in driver reimbursement litigation were premature. In Allen, the plaintiff moved for summary judgment on the question of whether he could prove his claims through estimates of vehicle costs, rather than by showing actual costs. The Allen court observed that the answer to that question hinged on two questions: (1) whether 29 C.F.R. § 778.217 allows an employer to reasonably approximate vehicle costs; and (2) if so, whether an employee may also reasonably approximate his vehicle costs.

The Allen court began by observing that virtually all district courts analyzing the question prior to Parker had determined that § 778.217 allowed an employer to reasonably approximate an employee’s vehicle costs for reimbursement purposes. The court observed that the Parker court had determined that § 778.217 did not apply to the question of how vehicle expenses must be reimbursed based on its conclusions that (1) § 778.217 “deals exclusively” with overtime compensation (not assessing minimum wage compliance, and (2) § 778.217 does not apply to “tools,” of which a vehicle is one). The Allen court noted, however, that the Sixth Circuit’s reasoning was contrary to the DOL’s 2020 opinion letter, in which the DOL observed that § 778.217 applied to minimum wage claims and reimbursement for a delivery vehicle is governed by § 778.217.

The Allen court observed that the Parker decision was entitled to no greater weight than the DOL’s opinion letter or district court decisions. And ultimately, the court determined that the 2020 opinion letter was entitled to Skidmore deference for at least three reasons. First, the DOL opinion letter had thoroughly analyzed the DOL’s recordkeeping requirements and had found that none required an employer to track an employee’s actual vehicle-related expenses to reimburse that exact amount. Second, the court observed that the opinion letter was consistent with the DOL’s previous pronouncements on the issue. Specifically, the Wage and Hour Division’s Field Operations Handbook had made clear that reimbursement of actual costs was not the only option for reimbursement. Finally, the court noted that it found the DOL’s conclusion compelling, particularly given the impracticality of tracking individual expenses. Thus, the Allen court held that an employer could approximate an employee’s vehicle costs for reimbursement purposes.

The court further observed that, while a driver could not rely on the Mt. Clemens “just and reasonable inference” standard for establishing damages because an employer has no obligation to maintain an employee’s personal vehicle records, an employee could attempt to establish damages through a reasonable approximation.

Implications

Although Parker marked the first federal appellate decision assessing how vehicle reimbursements should be calculated for purposes of assessing FLSA compliance, its ultimate impact may be limited. The Allen decision suggests that whether district courts outside of the Sixth Circuit follow Parker may hinge on whether those courts believe the 2020 DOL opinion letter is entitled to Skidmore deference. In the meantime, employers with national operations should prepare for the possibility of varying FLSA reimbursement standards in different geographical footprints.