Bradford v. Team Pizza, Inc.

UNITED STATES DISTRICT COURT

SOUTHERN DISTRICT OF OHIO

WESTERN DIVISION

Michael Bradford, )

)

Plaintiff, ) Case No. 1:20-cv-00060

)

vs. ) Judge Michael R. Barrett

)

Team Pizza, Inc., et al., )

)

Defendants. )

)

)

OPINION & ORDER

This matter is before the Court on the Magistrate Judge's May 26, 2021 Report and

Recommendation ("R&R"). (Doc. 53). Plaintiff filed timely objections (Doc. 55) and

Defendants filed a timely response to the objections (Doc. 59).

I. STANDARD OF REVIEW

The parties dispute the proper standard of review for the Court's review of the R&R.

Compare (Doc. 55 PageID 653), with (Doc. 59 PageID 705-06).

With respect to non-dispositive matters, "[w]hen a pretrial matter not dispositive of a

party's claim or defense is referred to a magistrate judge to hear and decide," and when

the Court receives timely objections to an R&R, "the district judge in the case must consider

timely objections and modify or set aside any part of the order that is clearly erroneous or

is contrary to law." FED. R. CIV. P. 72(a); accord 28 U.S.C. § 636(b)(1)(A). The "clearly

erroneous" standard applies to the magistrate judge's factual findings and the "contrary to

law" standard applies to the legal conclusions. Sheppard v. Warden, Chillicothe Corr., Inst.,

1:12-CV-198, 2013 WL 146364, *5 (S.D. Ohio Jan. 14, 2013). A factual finding is clearly

erroneous when, "although there is evidence to support it, the reviewing court on the entire

evidence is left with a definite and firm conviction that a mistake has been committed." Id.

(quoting United States v. U.S. Gypsum Co., 333 U.S. 364, 395 (1948)). Legal conclusions

should be modified or set aside if they "contradict or ignore applicable precepts of law, as

found in the Constitution, statutes, or case precedent." Id. (quoting Gandee v. Glaser,

785 F. Supp. 684, 686 (S.D. Ohio 1992)). With respect to "a pretrial matter dispositive of a

claim or defense," and when the Court receives timely objections to an R&R, the assigned

"district judge must determine de novo any part of the magistrate judge's disposition that

has been properly objected to." FED. R. CIV. P. 72(b); accord 28 U.S.C. § 636(b)(1). "The

district judge may accept, reject, or modify the recommended disposition; receive further

evidence; or return the matter to the magistrate judge with instructions."

FED. R. CIV. P. 72(b)(3).

Resolution of the proper standard for an employer's reimbursement of vehicle-

related costs incurred by hourly-paid pizza delivery drivers under the Fair Labor Standards

Act ("FLSA"), to avoid an improper kickback to the employer and the employees' wages

falling below the mandatory minimum wage, is a non-dipositive matter; the R&R is not

dispositive of a party's claim or defense; and review of the R&R under Federal Rule of Civil

Procedure 72(a) is proper. The Court will uphold the R&R unless it finds that the legal

conclusions therein are contrary to law.

II. ANALYSIS

The R&R sets out the parties' different arguments, and courts' different holdings,

as to the proper standard under the FLSA for an employer's reimbursement of vehicle-

related costs incurred by the employer's pizza delivery driver employees. (Doc. 53

PageID 631-35). The principal points of divergence are whether 29 C.F.R. § 531.35 is

genuinely ambiguous and Auer1 deference is appropriate. Plaintiff argues that 29 C.F.R.

§ 531.35 is genuinely ambiguous and, for an employer to sufficiently reimburse its delivery

driver employees for vehicle-related costs under the FLSA, the employer must either

reimburse drivers' actual costs or reimburse drivers using the Internal Revenue Service

("IRS") mileage reimbursement rate. (Docs. 30, 39, 43, 46, 55, 57, 60); see U.S. Dep't of

Labor Field Operations Handbook § 30c15(a) (2000). Defendants argue that 29 C.F.R.

§ 531.35 is not genuinely ambiguous and the employer must reimburse drivers' actual

costs or reimburse drivers using a reasonable approximation of the actual vehicle costs

associated with making deliveries. (Docs. 31, 38, 47, 49, 59); see U.S. Dep't of Labor,

Wage & Hour Div., Opinion Letter (Aug. 31, 2020). The Magistrate Judge agrees with

Defendants. (Doc. 53 PageID 636-46). Plaintiff objects. (Doc. 55).

This Court looks to two federal district court cases—Waters v. Pizza to You, LLC,

No. 3:19-CV-372, 2021 WL 1839974 (S.D. Ohio May 7, 2021) and Kennedy v.

Mountainside Pizza, Inc., No. 19-CV-01199, 2020 WL 5076756, (D. Colo. Aug. 26,

2020)—for guidance. In both cases, the plaintiffs were pizza delivery drivers pursuing

causes of action against their employers for alleged FLSA minimum wage violations. In

both cases, the plaintiffs argued that, for an employer to properly reimburse its delivery

driver employees for vehicle-related costs under the FLSA, the employer must either

reimburse drivers' actual costs or reimburse drivers using the IRS mileage reimbursement

rate. And, while neither case is binding upon this Court, they are useful by way of

1 Under Auer v. Robbins, 519 U.S. 452 (1997), deference is sometimes due to an agency's interpretation

of a genuinely ambiguous regulation. Golden Living Ctr. - Mountain View v. Sec'y of Health & Hum. Servs.,

832 F. App'x 967, 973 (6th Cir. 2020) (citing Kisor v. Wilkie, 139 S. Ct. 2400, 2414 (2019)); see also Bowles

v. Seminole Rock & Sand Co., 325 U.S. 410 (1945).

comparative review. See Camreta v. Greene, 563 U.S. 692, 709 n.7 (2011) ("A decision

of a federal district court judge is not binding precedent in either a different judicial district,

the same judicial district, or even upon the same judge in a different case.") (citation

omitted).

In Waters, the court found that 29 C.F.R. § 531.35 "is ambiguous as applied to

valuing vehicle expenses," as the "regulation does not set forth a methodology for

calculating mileage rates, or provide any other guidance as to how to determine or put a

value on the expenses related to operating an automobile for work." 2021 WL 1839974,

at *6 (citations omitted). After finding 29 C.F.R. § 531.35 ambiguous in this regard, the

court cited the Supreme Court of the United States' ("Supreme Court") decision in Kisor

v. Wilkie, 139 S. Ct. 2400 (2019), for the proposition that, "[i]n a situation involving

regulatory ambiguity that 'entail[s] the exercise of judgment grounded in policy concerns,'

courts should defer to an agency's reasonable interpretation of its regulations." Waters,

2021 WL 1839974, at *6 (citing Kisor, 139 S. Ct. at 2410). The court then found the

Department of Labor's ("DOL") Field Operations Handbook to be the reasonable agency

interpretation that is entitled to controlling weight. Id. at *6. The court concluded that,

under the Field Operations Handbook, the defendants must reimburse their delivery

drivers using the drivers' actual costs or at the IRS standard mileage rate. Id. at *10.

This Court, however, respectfully takes a narrower reading of Kisor than the court

in Waters does and, as a result, comes to a different conclusion as to the appropriateness

of applying Auer deference to answer the legal question presented. Cf. Kisor, 139 S. Ct.

at 2414 ("Auer deference is not the answer to every question of interpreting an agency's

rules. Far from it. As we explain in this section, the possibility of deference can arise only

if a regulation is genuinely ambiguous. And when we use that term, we mean it—

genuinely ambiguous, even after a court has resorted to all the standard tools of

interpretation."); United States v. Riccardi, 989 F.3d 476, 484-85 (6th Cir. 2021)

("Recently, however, the Supreme Court clarified Auer's narrow scope in the related

context of an agency's interpretation of its regulations.").

This Court finds the reasoning in Kennedy to be more compelling. That court held

that 29 C.F.R. § 531.35 is not genuinely ambiguous and, even if it was, the August 2020

DOL Opinion Letter is the reasonable agency interpretation that would be entitled to

controlling weight. Kennedy, 2020 WL 5076756, at *4-5 (citing Kisor, 139 S. Ct. at 2415).

The court explained that, "[b]ecause the text and structure of [29 C.F.R. § 531.35] assist

the Court in understanding what 'costs of tools' means in the context of expense

reimbursement, the term is not ambiguous." Id. ("noting a court must attempt to resolve

possible ambiguities in a regulation by carefully considering its text, structure, history, and

purpose before resorting to Auer deference") (citing Kisor, 139 S. Ct. at 2415). The court

concluded that the defendants must reimburse their delivery drivers using the drivers'

actual expenses or using a reasonable approximation of expenses incurred. Id. at *2. The

court noted that "the IRS standard mileage rate is a form of approximation by virtue of

being a national average" and "the DOL's interpretation of the pertinent regulations to

allow reimbursement of expenses at the IRS rate, as opposed to reimbursement of actual

expenses incurred, actually supports the [c]ourt's conclusion that the regulations permit

a reasonable approximation of expenses." Id. at *4 n.6.

In addition to reviewing Waters and Kennedy, the Court looks to the text and

structure of 29 C.F.R. § 531.35 to determine whether that regulation is genuinely

ambiguous. See Kisor, 139 S. Ct. at 2415.

Although the FLSA provides that wages "paid to any employee include[] the

reasonable cost . . . to the employer of furnishing such employee with board, lodging, or

other facilities, if such board, lodging, or other facilities are customarily furnished by such

employer to his employees," the Act does not make clear what "wages" means in the

context of employer-kickbacks. 29 U.S.C. § 203(m). However, the DOL regulations do.

See 29 C.F.R. § 531.35. Section 531.35 explains that the FLSA's minimum wage

requirement is not met unless the wages paid by the employer and received by the

employee are "free and clear." Id. Section 531.35 provides that wages are not paid "free

and clear" if the employee "'kicks-back' directly or indirectly to the employer . . . the whole

or part of the wage." Id. Section 531.35 provides an example of such an improper kick-

back and concludes with a reference to 29 C.F.R. § 531.32(c) ("For example," if the

employer requires "that the employee must provide tools of the trade2 which will be used

in or are specifically required for the performance of the employer's particular work, there

would be a violation of the Act in any workweek when the cost of such tools purchased

by the employee cuts into the minimum or overtime wages required to be paid him under

the Act. See also in this connection, § 531.32(c)."). 29 C.F.R. § 531.35.

Section 531.32(c), in turn, explains that "the cost of furnishing 'facilities' which are

primarily for the benefit or convenience of the employer will not be recognized as

reasonable and may not therefore be included in computing wages." Id. § 531.32(c).

2 Pizza delivery drivers' personal vehicles are "tools of the trade" under § 531.35. (Doc. 53 PageID 630)

(citing Hatmaker v. PJ Ohio, LLC, No. 3:17-CV-146, 2019 WL 5725043, at *2 (S.D. Ohio Nov. 5, 2019)).

Section 531.32(c) concludes with a reference to Section 778.217. Id. ("For a discussion

of reimbursement for expenses such as 'supper money,' 'travel expenses,' etc.,

see § 778.217 of this chapter.").

Section 778.217, in turn, restates the general rule found in Section 531 i.e., that

an employer's payments to its employees for expenses incurred on the employer's behalf

cannot be counted towards compensation. Id. § 778.217(a). Section 778.217 then

provides five illustrations of employee expenses that should not be regard as part of

employees' rates. Id. § 778.217(b). The illustration pertinent here provides that "[p]ayment

by way of reimbursement" is "not regarded as part of the employee's regular rate"3 when

it is for "[t]he actual or reasonably approximate amount4 expended by an employee who

is traveling 'over the road' on the employer's business." Id. § 778.217(b)(3).5

The Court holds that the text and structure of 29 C.F.R. § 531.35—which

incorporates 29 C.F.R. § 531.32(c), which in turn incorporates 29 C.F.R. § 778.217—is

not genuinely ambiguous as it relates to the costs associated with a pizza delivery driver

operating a vehicle for work. Thus, the Court need not defer to any of the DOL's

3 To the extent that Plaintiff argues that because 29 C.F.R. § 778.217 facially deals with overtime pay, and

not minimum wage, the interpretation is inapplicable to the question presented (Doc. 55 PageID 662-65),

Plaintiff's argument ignores § 531.32(c)'s express reference to § 778.217.

4 To the extent that Plaintiff asserts that the term "reasonably approximate amount" is ambiguous (Doc. 55

PageID 671-75), the Court finds that "the term 'reasonably' is vague, but not ambiguous;" "[v]agueness 'is

often intentional, as general terms (reasonable time, best efforts, equal protection) are adopted to cover a

multitude of situations that cannot be spelled out in detail or even foreseen;'" "[t]he term 'reasonable' allows

the Court the discretion to tailor the regulation to the circumstances before it, and this Court routinely applies

statutory standards of reasonableness without finding ambiguity." Kennedy, 2020 WL 5076756, at *5 (citing

Antonin Scalia & Bryan A. Garner, READING LAW: THE INTERPRETATION OF LEGAL TEXTS 33 (2012) (emphasis

in original)).

5 To the extent that Plaintiff contends that 29 C.F.R. § 778.217(b)(1) is the proper illustration, and not

§ 778.217(b)(3), (Doc. 55 PageID 668-71), he neither alleges nor argues that he purchased his vehicle "on

behalf of his employer," i.e., to deliver pizzas for Defendants. 29 C.F.R. § 778.217(b)(1); (Doc. 59

PageID 712-13).

interpretations of § 531.35 to determine the proper standard for reimbursement of such

costs. See Kisor, 139 S. Ct. at 2415 ("[I]f the law gives an answer—if there is only one

reasonable construction of a regulation—then a court has no business deferring to any

other reading, no matter how much the agency insists it would make more sense."). For

an employer to sufficiently reimburse its pizza delivery driver employees for vehicle-

related costs under the FLSA, the employer must either reimburse drivers' actual costs

or reimburse drivers using a reasonable approximation of the actual vehicle costs

associated with making deliveries.

In sum, the legal conclusions in the R&R are not contrary to law and, if liability is

found, the Court will use the reasonable approximation standard to calculate the proper

reimbursement due. See FED. R. CIV. P. 72(a).

III. CONCLUSION

In light of the foregoing, it is hereby ORDERED that Plaintiff's Objections (Doc. 55)

are OVERRULED and the Magistrate Judge's R&R (Doc. 53) is ADOPTED in its

entirety. Accordingly, it is further ORDERED that Plaintiff's Motion for Partial Summary

Judgment (Doc. 30) is DENIED and Defendants' Motion for Partial Summary Judgment

(Doc. 31) is GRANTED.

IT IS SO ORDERED.

_/s Michael R. Barrett_____

Michael R. Barrett, Judge

United States District Court