The United States Court of Appeals for the Ninth Circuit (which oversees California, Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington), in a non-trucking case, recently addressed whether per diem benefits functioned as compensation for work rather than as reimbursement for expenses incurred by traveling employees. As discussed further below, however, this case should be helpful to trucking companies in regard to the treatment of per diem in this case.
Background
An employer occasionally placed its employees at facilities that required them to drive a long distance from their homes. In addition to their hourly rates, the employer paid the employees who traveled more than fifty miles from their homes per diems that were intended to reimburse them for the cost of meals, housing, and other expenses. The employer did not include the per diem payments in the traveling workers’ regular rates of pay when calculating their overtime.
Two employees sued alleging that their weekly per diem benefits were improperly excluded from their regular rate of pay under the Fair Labor Standards Act (“FLSA”), which in turn decreased their wage rate for overtime hours. The Parties filed cross motions focusing on “the central question in the case: whether certain per diem payments to class member employees should be considered part of the employees’ ‘regular rate’ and therefore considered when calculating overtime pay rates.” The district court ruled in the employer’s favor and found that per diem benefits should be excluded from the employees’ regular rate of pay. The employees appealed the district court’s decision to the Ninth Circuit Court of Appeals.
Appellate Court’s Decision
The Ninth Circuit disagreed with the district court and reversed the court’s decision. It held that these per diem payments should have been included in the employee’s regular rate of pay because the structure of the payments suggested that they were more akin to wages rather than reimbursements. The court noted that the amount of the per diem payments depended in part on the number of hours worked by the employee rather than the expenses the worker incurred. The court also found it relevant that the employer made identical per diem payments to its employees who did not travel more than 50 miles away from home on assignment and considered those payments to be part of their overall compensation package. Ultimately, the court concluded that the per diem was not tied to the actual expenses each employee incurred and therefore should be considered “supplemental compensation” that should be included in the employees’ regular rate of pay.
Related 8th Circuit Decision
Readers may recall that nearly two years ago, the Eighth Circuit Court of Appeals (which oversees Arkansas, Iowa, Minnesota, Missouri, Nebraska, North Dakota, South Dakota) took on a similar issue, except that case was directly related to the trucking industry. There, the carrier created the “Payment Plan” as a recruiting tool to attract drivers. Under the optional Payment Plan, drivers in positions that required them to travel and regularly spend nights away from home were offered non-taxable, mileage-based per diem payments that ultimately put more money in the form of take-home pay in their weekly paychecks. In order for the Payment Plan to qualify as an “accountable plan” under the Internal Revenue Service (IRS) Treasury regulations, the carrier represented to the IRS, in part, that the payments were per diem payments for reasonably expected travel expenses.
The plan was challenged in court in the context of a lawsuit alleging minimum wage violations in the pay for drivers. The Plaintiffs argued that the per diem payments should be excluded from compensation for hours work. But the 8th Circuit rejected that challenge. The 8th Circuit found, in part, that because these payments were tied to miles driven (work performed), and because “the amount of per diem or other subsistence payment [was] based upon and thus varies with the number of hours worked per day or week, such payments are a part of the regular rate in their entirety.” Therefore, the 8th Circuit concluded that the per diem payments were part of the overall compensation for hours worked.
Takeaway
Although the 9th Circuit’s decision did not directly involve an employer in the trucking industry, the holding has clear implications within the trucking industry. The next logical extension would be for the 9th Circuit to uphold a similar plan or compensation structure as the 8th Circuit did, or extend its ruling to cover similar compensation plans. While it is difficult to predict how the 9th Circuit may rule on any particular issue, this decision provides hope that the court may support such a compensation plan or find per diems paid to drivers to be included in their regular rate of pay, at least in the federal FLSA context. Trucking companies should consult with experienced employment counsel if they have any questions concerning their per diem payments as part of their overall driver compensation structure or regarding per diem and compensation plans in general.
R. Eddie Wayland is a partner with the law firm of King & Ballow. You may reach Mr. Wayland at (615) 726-5430 or at rew@kingballow.com. The foregoing materials, discussion and comments have been abridged from laws, court decisions, and administrative rulings and should not be construed as legal advice on specific situations or subjects.
