Over the last month, Domino’s has been in the news for some of the wrong reasons, with not one but two Fair Labor Standards Act (FLSA) class action lawsuits alleging that two large Domino’s franchisees paid delivery drivers less than minimum wage. Ho-hum, “wage theft,” #FightFor15, etc., right? Why am I highlighting this case? It’s the reason the workers have cited in the separate lawsuits against approximately 100 stores in Georgia and 70 in California. In both cases, the franchisees paid the workers at least the minimum wage for hours worked. However, the plaintiffs allege that it was the franchisees’ methods for reimbursing delivery drivers for their expenses that led to the FLSA violations.

That’s what makes these cases interesting. One question that often comes up for business owners is whether they must reimburse employees for mileage or other expenses, such as a technician that drivers his own truck, a maintenance worker who purchases his own tools, or a production worker who purchases uniforms. Many employers do reimburse employees for their work-related expenses, whether for employee morale reasons or simply for the tax deduction, but the FLSA does not require employers to do so. In fact, the FLSA does not contain any rules mandating these reimbursements. If that’s true, why are these Domino’s franchisees in court? The FLSA has one narrow exception.

The FLSA requires that employers pay an employee’s wages finally and unconditionally, or “free and clear.” If an employee is required to return some portion of wages—whether directly or indirectly—and that “kickback” puts the employee’s hourly rate below the minimum wage, then the employer has violated the FLSA’s minimum wage requirement.

A kickback is triggered in one of two ways:

  1. through deductions from the employee’s wages to pay for an expense that was for the benefit of the employer;
  2. by failing to reimburse an employee for those expenses.

The FLSA kickback rule is at the heart of the Domino’s franchisee lawsuits. According to the complaints, the franchisees reimbursed delivery drivers a flat $1 per delivery in most cases. Relying on the current IRS mileage reimbursement rate of 57.5 cents per mile, the plaintiffs calculated that the franchisees had shorted them about $1.30 per delivery. Averaged out across multiple deliveries, the plaintiffs claim that they were indirectly giving a kickback to their employers of $3.25 per hour, taking them below the minimum wage.

This FLSA kickback rule comes up with some regularity in cases involving delivery drivers who use their own vehicles, for obvious reasons. Anytime an employee uses a personal vehicle for company business, employers need to pay close attention to whether the expenses the employee bears by doing so puts him or her below the minimum wage.

For workers making at or near the minimum wage, it only takes minor expenses to create major problems. An employee making $8.00 per hour needs to incur just $6 per day in expenses for the kickback to take him or her down to the federal minimum wage.  Expenses for the benefit of an employer are defined broadly, too.   

As always, remember to consider state law in addition to the FLSA. Obviously, the minimum wage is higher in some states, but states also often have specific requirements for expense reimbursements or deductions.  The FLSA does not necessarily require you to reimburse employees for mileage or other expenses. But remember, employees cannot waive their right to receive minimum wage, directly or indirectly. Particularly for employees who make at or near the minimum wage, you must remain mindful of the impact of business expenses like mileage, uniforms, or travel that you require employees to bear. Otherwise, the FLSA kickback rule could come back to haunt you.