Labor Law: Dominos’ FLSA Violation Case More Complex Than It First Appears

pizza-delivery-w-textFor the last several years the issue of fair minimum wage rights has been front and center in an increasingly passionate public debate. Because it is perceived as a classic David and Goliath mismatch, it is tempting to assume that employers are automatically the bad guys. But, as the following discussion demonstrates, the topic of fair worker compensation can be complicated, both morally and legally.

Perhaps you have noted recent reports of two Fair Labor Standards Act (FLSA) class action lawsuits against Domino’s franchisees in Georgia and California. This is not the first labor related action against Domino’s franchisees, nor is it the first against pizza chains and other fast food store owners.  However, this one is a little different because it ties in a minimum wage action with the reimbursement of delivery drivers for their expenses. This fact makes the case less straightforward and shifts it into an interesting gray area. The strategy chosen by the plaintiff’s legal team also highlights the fact that legislative rules often seem designed to make justice harder to come by.

Filed by a pizza delivery driver in California, the lawsuit alleges that Hishmeh Enterprises, Inc. (the fifth largest Domino’s franchise owner in the country) deprived drivers of fair wages by imposing a faulty policy to determine reimbursement rates. The plaintiffs are not claiming that the store owners were failing to pay the federal $7.25/hour minimum wage for the hours they worked. They are instead asserting that the way in which the owners paid them for vehicle expenses subtracts “value” from their overall compensation and constitutes an FLSA violation.

According to the lawsuit, Hishmeh Enterprises’ flat fee of $1.00 per delivery is the problem: based on standard IRS mileage reimbursement charts, the drivers should be entitled to 57.5 cents a mile. When the plaintiff’s worked out the numbers, they concluded that they were being shorted $1.30 per delivery, which translates into a negative $3.25 an hour. The complaint claims this shortfall runs afoul of the FLSA “kickback” rule by virtually subtracting the $3.25 an hour from the drivers’ wages, almost cutting their compensation in half.

The complaint reads in part: “The net effect of defendant’s flawed reimbursement policy is that it willfully fails to pay the federal and state minimum wage to its delivery drivers.”

In other words, the class action suit is attempting to force Hishmeh Enterprises to compensate drivers fairly for their expenses, but is coming at it by claiming a minimum wage violation. Ironically, the FLSA does not clearly mandate that business owners must compensate employees for personal expenses incurred while doing their job. The law does not specifically tell a pizza franchisee “you must reimburse your drivers for mileage on personal cars used during deliveries.”

Instead, the Feds use oblique language that most likely means the same thing.  While the FLSA clearly mandates that employers pay wages “free and clear”, that condition can be compromised if an employee is forced to pay a “kickback” to their employer. One of the definitions of a kickback is failing to reimburse an employee for expenses that benefit the employer.

If the FLSA language simply stated that employees using their own vehicles for company business must be reimbursed at a minimum of the current IRS mileage allowance, then there would be far less to dispute. But for the Hishmeh Enterprises’ legal team, there will be plenty to dispute. There are any number of variables involved in computing expense allowances for delivery drivers. For example, how many miles does do drivers average per delivery and how many deliveries does a driver average per hour? The only thing we know for sure at this point is that the defendant’s attorneys will have different numbers than the plaintiffs’.

Were the defendants really trying to cheat their drivers? Is the flat fee per delivery a free market approach to incentivizing employees to be more efficient or simply an invitation to exceed the speed limit? In several years we will at least know what a California court thinks about it.

Meanwhile, for small business owners the best approach to labor relations is to avoid the courts in the first place. Likewise, for employees, it is important to understand what the law really says about your rights.

Bellas and Wachowski has been handling employment law for over 40 years.  We invite you contact us with any questions you have on the topic.  For additional information and a free initial consultation, contact attorneys George Bellas or William Boznos.