Employment Law Daily Pizza chain can’t retroactively use delivery drivers’ tips to offset vehicle expenses
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Monday, March 26, 2018

Pizza chain can’t retroactively use delivery drivers’ tips to offset vehicle expenses

By Marjorie Johnson, J.D.

A local pizza chain could not use delivery drivers’ tips to reimburse their vehicle expenses for purposes of meeting minimum wage requirements, since the notice to tipped employees stated only that it would take a tip credit that was exactly the difference between the drivers’ cash wage and the minimum wage rate. In this certified class action brought by a delivery driver asserting violations of the FLSA and the Michigan Minimum Wage Law, a federal court in Michigan also found that triable issues existed as to whether the employer’s pay structure violated minimum wage laws. Accordingly, the driver’s motion for partial summary judgment was granted and the defendants’ motion for summary judgment was denied (McFarlin v. The Word Enterprises, LLC, March 21, 2018, Drain, G.).

Notice to tipped employees. The delivery driver worked for a chain of three Hungry Howie’s franchises, which required its drivers to use their personal vehicles to make pizza deliveries. The drivers received a cash wage of $5 per hour and a run charge of either $.75 or $1.75 per delivery, depending on the location. The statutorily required “Minimum Wage Notice to Tipped Employees” posted at each location stated that the employer would take a tip credit that was exactly the difference between the drivers’ cash wage and the Michigan minimum wage.

The plaintiff alleged that because he and similarly situated drivers were not adequately reimbursed for vehicle expenses incurred while delivering pizzas, they were paid less than the federal and state minimum wages. The employer responded that it had met the minimum wage requirements since it could apply a part of the tip credit to those vehicle expenses. In its motion for partial summary judgment, the plaintiff argued that the employer could not use tips in excess of the tip credit to reimburse the drivers’ vehicle expenses since it failed to provide prior notice of its intention to do so.

Failure to give notice of higher tip credit was fatal. Siding with the plaintiff on this issue, the court found that the employer could not retroactively claim a higher tip credit to show it met its minimum wage obligations. It was uncontested that its written notice stated that it would take a tip credit equal to the difference between the cash wage they were paid and the minimum wage. In other words, it would only take as much tip credit as necessary to get delivery drivers’ salaries to the exact minimum wage. However, the employer now argued that it could take a tip credit in excess of that amount to cover vehicle expenses. But relevant case law provides that the retroactive application of a higher tip credit does not constitute adequate notice. Significantly, the Sixth Circuit has held that the statutory obligation to provide notice of tip credits requires an employer to inform the employee of the tip credit amount, and not just that the employer is taking a tip credit. This includes informing an employee of the amount of the tip credit if it changes.

Here, the employer did not give its delivery drivers notice of its intent to take the maximum amount of tip credit, but instead only gave notice of its intent to take just enough tip credit to get the drivers to the minimum wage. Therefore, though it asserted that it could pay a higher cash wage and still take the maximum tip credit to reimburse vehicle expenses, it could not claim a greater tip credit than it originally claimed because it did not notify the drivers in advance of the change. In so ruling, the court squarely rejected the employer’s assertion that it did not have to explain the tip credit, but only had to inform employees that it planned to take a tip credit, since the Sixth Circuit case it cited for this proposition did not actually address this issue.

Did drivers receive minimum wage? Moreover, the employer’s motion for summary judgment was denied since triable issues existed as to whether the drivers were paid the minimum wage. In arguing that it undisputedly paid the drivers at or above the minimum wage, it argued that the drivers received a cash wage of $5.00/hour, a delivery fee of $.75 or $1.75 per delivery, and that they kept all tips. However, as discussed, the employer could not count all tips toward the drivers’ wages. Because it could only take a tip credit great enough to cover the difference between the drivers’ cash wage and the minimum wage, the employer’s assertion that it paid the drivers at or above minimum wage because they kept all their tips was not valid.

The employer also contested the plaintiff’s expert report, which purported to show his vehicle costs to highlight that he was paid below the minimum wage rate. The calculations that the employer used to challenge the plaintiff’s minimum wage claim incorrectly used all the tips he received, though. At most, it could take the maximum tip credit in order to cover employee expenses. Moreover, the employer could not take the maximum tip credit here anyhow, because it had failed to give the drivers adequate notice of its intention to do so.

The record reflected that the drivers were only paid compensation equal to the exact minimum wage plus the delivery commission each pay period. Because the plaintiff was entitled to compensation for vehicle expenses incurred on the employer’s behalf, and the employer could not rely on its argument that it could use all tips or use tips in excess of the tip credit to meet minimum wage requirements, triable issues existed about whether the employer’s pay structure violated minimum wage laws.

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