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Rechtoris v. Dough Management Inc.

United States District Court, N.D. Indiana, South Bend Division

April 8, 2019

DOUGH MANAGEMENT, INC., d/b/a “Domino's Pizza, ” and JAMES GRONEMANN, Defendants.



         Plaintiff Corey Rechtoris delivers pizza for Domino's, and he claims that he was ripped off by his employer's compensation scheme. It's a federal case because he is claiming that his pay violates federal minimum wage law. In particular, he asserts that when the expenses he incurs using his own vehicle to make deliveries are taken into account, his actual pay falls below the minimum wage. [DE 1 at ¶1.] The lawsuit is brought as a collective action under the Fair Labor Standards Act “to recover unpaid minimum wages and overtime hours owed to [Rechtoris] and similarly situated delivery drivers employed by Defendants at their Domino's Pizza stores.” [Id. at ¶2.] The defendants are Dough Management, Inc., a corporation that owns and operates a number of Domino's Pizza franchises, and individual James Gronemann, who is alleged to be “an owner, officer and director of Dough Management, Inc.” and responsible for the pay scheme and practices of the business. [Id. at ¶¶5, 8, 9, 10.]

         Defendants have filed a motion to dismiss the first amended complaint under Fed.R.Civ.P. 12(b)(6). To survive the motion, the complaint must allege sufficient facts to plead a claim for relief that is plausible on its face. Ashcroft v. Iqbal, 556 U.S. 662, 678 (2009), citing Bell Atlantic Corp. v. Twombly, 550 U.S. 544, 570 (2007). What is odd about defendants' motion is that, although it is brought pursuant to Rule 12(b)(6), it is supported by affidavits and documents that are not mentioned in the complaint; this is a no-no. A motion to dismiss is not the time to be arguing about the facts; it's the time to test the legal sufficiency of the allegations made in the complaint, which are assumed to be true.

         The Seventh Circuit has recently applied the motion to dismiss standard to the specific context of an FLSA minimum wage claim. “In order to comply with the requirements of Twombly, Iqbal, and Fed.R.Civ.P. 8(a)(2), a plaintiff alleging a federal minimum wage violation must provide sufficient factual context to raise a plausible inference there was at least one workweek in which he or she was underpaid.” Hirst v. Skywest, Inc., 910 F.3d 961, 966 (7th Cir. 2018), petition for cert. filed (U.S. Feb. 22, 2019) (No. 18-1097). In the absence of such pleading, the Court of Appeals affirmed the dismissal of an FLSA collective action claim by a group of flight attendants. Id. Notice that the dismissal in Hirst was based on the insufficiency of the factual allegations in the complaint, not because of some additional facts proffered by the defendant.

         The FLSA requires that “Every employer shall pay to each of his employees who in any workweek is engaged in commerce…not less than-- $7.25 an hour.” 29 U.S.C. §206(a)(1)(C). Federal labor regulations require that wages must be paid “free and clear, ” meaning that job-related expenses primarily for the benefit of the employer (such as tools or uniforms) can't be charged to the employee if the expenses would drive the employee's pay below minimum wage. 29 C.F.R. §531.35. “The wage requirements of the Act will not be met where the employee ‘kicks-back' directly or indirectly to the employer… the whole or part of the wage delivered to the employee.” Id.

         Rechtoris's claim focuses on defendants' per-delivery reimbursement for automobile expenses, which the complaint alleges was “$1.50 or less per delivery.” [DE 12 at ¶25.] Rechtoris alleges generally that “Defendants have reimbursed delivery drivers less than the reasonably approximate amount of their automobile expenses to such an extent that it diminishes these employees' wages beneath the federal minimum wage.” [DE 12 at ¶47.]

         The specific factual allegations concerning Rechtoris's pay and the impact of the allegedly insufficient auto expenses reimbursement are found in paragraphs 23-27 of the first amended complaint. Although a bit confusing, those paragraphs allege in sum that the auto expenses reimbursement of $1.50 per delivery represents at least $.16 per mile less than a reasonable approximation of the actual auto expenses (using the IRS business mileage reimbursement rate as the standard). See ¶¶25-26. When the cash wage plus tip credit merely equal the minimum wage, any reduction of that amount constitutes underpayment, and Rechtoris is alleging that these defendants never paid more than the minimum wage (in cash wage plus trip credit - see ¶23) and always under-reimbursed auto expenses, such that Rechtoris was always paid less than minimum wage. These factual allegations raise a plausible inference that there was at least one workweek in which Rechtoris was underpaid.

         Defendants' argument for dismissal is that Rechtoris “has suffered no economic injury based on unpaid federal minimum wages” and therefore “lacks standing to sue under the FLSA.” [DE 14 at ¶¶2, 3.] Relying on employee earnings records they have provided, along with the affidavits of a store manager and assistant manager, defendants argue that when his actual reported tips are taken into account, Rechtoris's average hourly wage in 2018 was $12.66 per hour, well above the minimum hourly wage of $7.25. [DE 14-1 at ¶6.]

         Rechtoris has responded to this argument with a “So, what?” He tells me that “[t]o date, every court to decide this issue has held that all tips above the amount of a lawfully-invoked and noticed tip credit do not count toward minimum net wage rate, do not count toward minimum wage compliance, and cannot offset minimum wage violations.” [DE 15 at 1 (emphasis in original).] As a pizza delivery driver, Rechtoris is within the class of “tipped employees” for whom the FLSA allows employers to meet minimum wage requirements by paying less than the full minimum wage but relying on what is called a “tip credit, ” which is defined as “an additional amount on account of the tips received by such employee which amount is equal to the difference between” the cash wage and the minimum wage. 29 U.S.C. §203(m)(2)(a)(ii). But in order to benefit from the tip credit, an employer is required to disclose certain information to its employees, including the employer's declaration of the amount of the tip credit being claimed: “the additional amount by which the wages of the tipped employee are increased on account of the tip credit claimed by the employer.” 29 C.F.R. §531.59. The regulations clearly indicate that actual tips received by a server or delivery driver above what the employer has claimed in advance as a permissible tip credit don't count as compensation toward meeting the minimum wage requirement: “[a]ny tips received by the employee in excess of the tip credit…are not payments made by the employer to the employee as remuneration for employment within the meaning of the Act.” 29 C.F.R. §531.60.

         Rechtoris suggests that defendants' theory - that they can rely on actual tips to cover any reduction of the total hourly wage due to an insufficient auto expenses reimbursement - is in effect a retroactive increase in the amount of the tip credit, which employers are not allowed to do. As noted above, several courts have held against employers who have made a similar argument. Take, for example, Sullivan v. PJ United, Inc., __ F.3d__, 2018 WL 6220114, at *23 (N.D.Ala. July 19, 2018) where an Alabama district court recently rejected a nearly identical argument by Papa John's franchisees: “To the extent that Defendants may subsequently argue that the amount of tips - in excess of the amount of (1) cash wage and (2) tip credit paid - can be used in a post hoc fashion to offset Sullivan's vehicle costs so that a minimum wage violation does not occur, that argument is foreclosed by §203(m) and DOL regulations.” The decision supports Rechtoris's argument that “[e]mployers cannot be allowed to retroactively increase or decrease the tip credit amount that counts towards their minimum wage compliance.” Id.

         The same view of the interrelationship among “the FLSA's tip credit, minimum wage, and overtime provisions” is found in an Eastern District of Missouri decision also involving Papa John's delivery: “Nothing in the DOL guidance documents, regulations, or the FLSA permits Defendants to claim a higher tip credit retroactively, in order to gain the benefit of an offset, without having notified Plaintiffs of the higher tip credit (and the correspondingly higher rate of pay for overtime purposes).” Perrin v. Papa John's International, Inc., 114 F.Supp.3d 707, 729 (E.D.Mo. 2015). Other courts have reached the same conclusion. See, e.g., McFarlin v. Word Enterprises, LLC, No. 16-cv-12536, 2018 WL 1410827, at *4 (E.D.Mich. Mar. 21, 2018); Meetz v. Wisconsin Hospitality Group LLC, No. 16-C-1313, 2017 WL 3736776, at *5 (E.D.Wis. Aug. 29, 2017).

         In reply, defendants aptly demonstrate that they fully understand Rechtoris's position, which they summarize as follows: “[H]e claims that the Defendants cannot be given the benefit of a trip credit in excess of $7.25 since they did not notify the Plaintiff in advance that they intended to do so, ” and that “Defendants were required to inform him that he would be compensated at a rate higher than $7.25 an hour on account of his hourly cash wages plus tips and that in the event his tips did not reach the higher rate, they would make up the difference.” [DE 18 at 3.] Rather than attempt a direct rebuttal of these accurate and legally-supported claims, defendants attempt a sleight of hand, arguing that if they had given notice in advance of an intent to claim a larger tip credit, one large enough to cover the alleged deficiency of the auto expense reimbursement, then Rechtoris's compensation would be unaffected, still averaging $12.66 per hour in cash wages plus tips in 2018. [DE 18 at 3.] In other words, no harm, no foul. On this reasoning, defendants assert that Rechtoris has no standing because he is unable to show an injury-in-fact. [Id. at 3-4.][1]

         But Rechtoris's claim is obviously not that defendants should have claimed a larger tip credit. Instead, it's that defendants did not pay an adequate auto expenses reimbursement, and that their failure to do so resulted in a minimum wage violation. The economic injury Rechtoris claims is that he wasn't paid an adequate auto expense reimbursement. If he had been, then his take-home pay would have been ...

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