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Despite statements to IRS, trucking company not estopped from including travel reimbursements in minimum wage calculations

By Brandi O. Brown, J.D.

A trucking company that told the IRS per diem travel payments made to truckers were reimbursements for travel expenses, but nevertheless included those payments in its calculation of minimum wages under the FLSA, was not taking an inconsistent position, the Eighth Circuit ruled, affirming dismissal of class claims by the truckers. The two calculations were “done for different purposes and under entirely unique regulatory schemes.” Moreover, there were “seemingly obvious indicators” that the payments made functioned as a wage and the district court did not err in reaching that conclusion. The appeals court affirmed the lower court’s decision dismissing the drivers’ minimum wage claims (Baouch v. Werner Enterprises, Inc. dba Werner Trucking, November 14, 2018, Beam, C.).

More take-home pay as incentive. According to the lawsuit filed by the truckers, their employer implemented a payment plan in 2003, offering drivers an untaxed mileage rate for days spent driving away from home overnight that was intended to attract new employees. The payments were not subject to employment and income tax withholding. Thus, drivers took home more pay each week. Drivers, however, could elect not to participate in the Payment Plan and, if so, could receive all of their pay subject to taxes. The employer included the Payment Plan payments in its minimum wage calculations under the FLSA, the Nebraska Wage and Hour Act, and the Nebraska Wage Payment and Collection Act for the drivers who elected to receive them. Nevertheless, the district court noted that the taxable wage received by participating employees was “suspiciously close” to the total taxable wage of nonparticipants.

Drivers argued wage violations. The drivers argued that the employer should not have included the payments in the minimum wage calculations for the participating drivers. They claimed that had they been properly excluded, the wage rate they received would not satisfy the minimum wage requirements. In making that argument to the district court, the drivers contended that the employer’s stance under the FLSA was also inconsistent with its representations to the IRS. With regard to the FLSA, the drivers argued, the employer described the payments as ones that were not reimbursement for reasonable travel expenses, but to the IRS the employer instead represented that the payments were reimbursement for travel expenses that it reasonably expected its drivers to incur. These representations were inconsistent and legally incongruent, the drivers asserted.

Claims dismissed, appeal. Nevertheless, the district court held that the payments were part of the regular rate, concluding the indicators pointed the court toward a conclusion that the purpose and form of the payments indicated the intended purpose of the payments was remuneration for work performed under the FLSA. The district court rejected the judicial estoppel argument, noting that the IRS regulations that governed such plans were not necessarily compatible with the DOL regulations that governed employees’ regular rates for the purposes of minimum wages. The drivers appealed.

Not estopped. “A primary thrust” of the drivers’ argument on appeal was their claim the employer’s statements to the IRS regarding the payments were binding admissions. Those admissions, the drivers argued, were all that was necessary to exclude the payments from the wage calculations. The appeals court disagreed, however, concluding that as a matter of law judicial estoppel did not apply and the employer was not bound to its statements in such a way that would affect the outcome of the case. The prior representations made by the employer to the IRS were not clearly inconsistent with the position taken by the employer in this litigation, the court explained, because the IRS regulations in question were not identical to the DOL regulations that governed the calculation of regular rates for the purposes of minimum wages. Thus, legal estoppel did not apply.

Moreover, under a “quasi-estoppel” theory, the drivers’ arguments were no more successful. While confusion could result from the similarities in the employer’s representations under each framework, it was reasonable for the district court to hold that the employer was not estopped “nor beholden to earlier representations in a legally binding way.” Each calculation was “done for different purposes and under entirely unique regulatory schemes.” The employer “is not cabined in the instant case to a particular representation of ‘reimbursement’ as might have been germane in previous IRS proceedings,” the court concluded.

Minimum wage paid. A “case-specific factual inquiry” was necessary to determine whether the employer violated the FLSA because whether a per diem could be included or excluded from the regular wage was dependent on several factors. The district court did not err in its analysis, the appeals court concluded. The payments, based on the miles driven, were therefore based on hours worked, the court explained, and therefore correctly included in the regular rate calculation. The DOL Handbook, which is treated as persuasive authority, provides that if the amount of a per diem varies with the number of hours worked, that payment is part of the regular rate. Thus, it supports the understanding that “at the end of the day under the FLSA, one important criterion is whether a payment is remuneration for employment, or not.”

And, notable in this case, the court explained, were the “seemingly obvious indicators that these Payments function as a wage.” The total pay, including the payments plus the applicable taxable wage, provided to participating drivers was “suspiciously close to the taxable wage paid to non-participants.” Other factors—including the form and purpose of the payments, that they were unrestricted in terms of how they were used, the original impetus for offering the plan (market competition), and the goal to maximize take home pay—also led to the conclusion that they were intended to act as remuneration for work.

The same reasoning applied under the FLSA also foreclosed the drivers’ state-law claims, the court added. Thus, it affirmed dismissal of both the federal and state-law claims.