Baouch v. Werner Enterprises, Inc. et al
MEMORANDUM AND ORDER - The Motion for Summary Judgment, ECF No. 316 , filed by Defendants Werner Enterprises, Inc., and Drivers Management, LLC, is granted. Plaintiffs' Motion for Summary Judgment, ECF No. 321 , is denied. This matter is dismissed, with prejudice. All other pending motions are denied as moot. A separate judgment will be entered. Ordered by Chief Judge Laurie Smith Camp. (GJG)
IN THE UNITED STATES DISTRICT COURT
FOR THE DISTRICT OF NEBRASKA
YASSINE BAOUCH, on behalf of himself
and all those similarly situated, et al;
MEMORANDUM AND ORDER
WERNER ENTERPRISES, INC., and
DRIVERS MANAGEMENT, LLC,
This matter is before the Court on several motions. Defendants Werner
Enterprises, Inc., and Drivers Management, LLC (collectively “Werner”) filed the
following motions: Motion to Exclude Expert Testimony, ECF No. 303; Motion to
Decertify the Class and Collective Action, ECF No. 314; Motion for Summary Judgment,
ECF No. 316; and the Motions to Strike, ECF Nos. 347 and 363. Also before the Court
are the following motions filed by Plaintiffs: Motion to Partially Exclude Expert
Testimony, ECF No. 311; and the Motion for Summary Judgment, ECF No. 321. For the
reasons stated below, Werner’s Motion for Summary Judgment, ECF No. 316, will be
granted and Plaintiffs’ Motion for Summary Judgment, ECF No. 321, will be denied. The
remaining motions will be denied as moot.
The following facts are those stated in the Parties’ briefs, supported by pinpoint
citations to evidence in the record, in compliance with NECivR 56.11 and Federal Rule
of Civil Procedure 56.
See NECivR 56.1(b)(1):
Werner is a logistics company engaged in hauling and delivering freight
throughout the United States. Werner employs thousands of drivers to perform its
freight transportation services. This case involves an optional payment plan for its
drivers that Werner created pursuant to certain Internal Revenue Service (“IRS”)
regulations (the “Payment Plan”). The Payment Plan provided payments to drivers,
ostensibly for meals and other incidental expenses drivers were expected to incur while
traveling (the “Payments”). The primary issue in this case is whether the Payments were
reimbursements for expenses, or compensation for work performed.
I. Operation of the Payment Plan
A. Eligible Experienced Drivers
Werner’s drivers were compensated as either experienced or student drivers.
IRS Ltr., ECF No. 317-32, Page ID 21154. Werner implemented its Payment Plan for
non-student, experienced drivers in 2004. Participation was limited to eligible drivers
employed in positions2 that required them to travel and spend nights away from home
on a regular basis. IRS App. Comm., ECF No. 320-3, Page ID 21674, 21677. The
Payment Plan offered non-taxable, mileage-based payments, ostensibly representing
reimbursement for meals and other expenses incidental to travel. Werner Educ.
Materials, ECF 317-37, Page ID 21442. Eligible experienced drivers elected whether to
The party opposing a summary judgment motion should include in its brief a concise
response to the moving party’s statement of material facts. The response should address
each numbered paragraph in the movant’s statement and, in the case of any
disagreement, contain pinpoint references to affidavits, pleadings, discovery responses,
deposition testimony (by page and line), or other materials upon which the opposing party
relies. Properly referenced material facts in the movant’s statement are considered
admitted unless controverted in the opposing party’s response.
Werner’s Van; Regional; Team Werner; Flatbed; TCU and some Specialized Services
(Dedicated) drivers are eligible to participate in the program. Werner Handbook, ECF No. 317-36, Page
participate in the Payment Plan during their new-hire orientation, but were permitted to
change their participation status by opting into, or out of, the Payment Plan on a yearly
basis. IRS App. Comm., ECF No. 320-3, Page ID 21674. Experienced drivers already
employed in 2004 were given the opportunity to opt in to the Payment Plan at the time it
was implemented and were permitted to change their participation status annually.
Eligible drivers that elected to participate in the Payment Plan qualified for
Payments when driving and away from home overnight. IRS Ltr., ECF No. 317-32, Page
ID 21155-156. Werner used a Home Time Counter program on its AS400 Computer
System to track drivers’ daily statuses. Id. If a driver returned home before 6:00 p.m. or
left home after noon on a particular day, the driver would be considered “at home” that
day. Id. “Drivers returning home after 6:00 p.m. from a trip that started on a day prior to
the day in which they return home, and those leaving home before noon on a given day
and returning on a subsequent day are considered away from home overnight.” Id. If a
driver was away from home overnight but unavailable for work, he or she was given “at
home” status. Id.
Werner’s experienced drivers were paid at various per-mile rates. Those enrolled
in the Payment Plan received one portion of their pay based on the applicable mileage
rate, subject to taxes, and the other portion as Payments—a non-taxable sum based on
the applicable Payment Plan mileage rate for days spent driving away from home
overnight. Werner Educ. Materials, ECF No. 317-37, Page ID 21440-442; see infra
Table 1. The IRS imposed a special transportation meal and incidental expenses rate
(“M&IE rate”) that limited the daily amount of non-taxable Payments a driver could
receive.3 In the event a driver’s Payments exceeded the M&IE rate, the excess amount
was subject to employment and income taxes. Werner Educ. Materials, ECF No. 31737, Page ID 21441. Thus, no driver could receive a Payment amount that exceeded the
IRS-imposed daily limit, but could receive less than the limit based on the Payment Plan
mileage rate and the number of miles driven during a particular day. Id.
Because the Payments were not subject to employment and income tax
withholding, the Payment Plan’s primary effect was to cause participating drivers to
receive more money in the form of “take-home pay” in their weekly paychecks. IRS App.
Comm., ECF No. 320-3, Page ID 21675-676. To demonstrate how the Payments could
increase take-home pay, Werner provided an example of how the Payment Plan would
apply to experienced drivers in its educational materials, reproduced in the following
Example of Driver’s Net Pay Per Week under Non-Per Diem and Per Diem Plans
Taxable compensation rate per mile
Per diem rate per mile
Per Diem Plan
Total rate per mile
Days away from home during week (on duty)
Miles driven during the week
Calculation of Net Pay
Health Insurance (single) deduction
The special transportation federal M&IE rate was $52 per day in 2009 and $59 per day in 2010.
IRS App. Comm., ECF No. 320-3, Page ID 21674; Rev. Proc. 2008-59, 2008-41 I.R.B. 857 (2008); Rev.
Proc. 2009-47, 2009-42 I.R.B. 524 (2009).
Werner Educ. Materials, ECF No. 317-37, Page ID 21442.
401(k) retirement savings plan deduction
Federal income tax withheld
(based on 1 withholding allowance)
State Income tax withheld (assume 4%)
Total tax withheld
Net pay before non-taxable per diem
Non-taxable per diem
Total net pay (excluding bonuses)
Increase in net pay per week under per diem plan
Increase in annual net pay under per diem plan
Benefit per mile of per diem
Percent increase in net pay
Drivers electing not to participate in the Payment Plan received all their pay,
based on various per-mile rates, subject to employment and income tax. To the extent
non-participating drivers incurred meal and other incidental expenses while traveling,
those expenses could be validated with receipts and deducted on their annual income
tax returns. Steele Depo., ECF No. 317-3, Page ID 20072.
Drivers participating in the Payment Plan could only deduct such expenses on
their annual tax returns when the expenses exceeded their Payments, which were
subject to the daily limit imposed by the federal M&IE rate. Werner Educ. Materials,
ECF No. 317-37, Page ID 21441. If an experienced driver was providing services away
from home, but not actually driving due to a break down, waiting for a load or pick up,
etc., he or she would not receive Payments for that time because the driver was not
accumulating miles.5 IRS App. Comm., ECF No. 320-3, Page ID 21676.
The mileage-based Payment Plan did not apply to student drivers. Student drivers received
Payments based on a flat daily rate regardless of mileage for days spent away from home overnight.
Experienced drivers’ Payments were based entirely on mileage during days spent away from home
overnight. IRS App. Comm., ECF No. 320-3, Page ID 21675.
Werner asserts that it sought to establish its Payment Plan as a recruitment tool
for attracting drivers to the company. Steele Affd., ECF No. 324-2, Page ID 23040.
Werner claims it had knowledge of other trucking companies that operated similar plans
providing untaxed payments for meals and incidental expenses, and that this
encouraged Werner to offer a similar program for its drivers. Wingert Depo., ECF No.
317-2, Page ID 20016. An IRS tax examiner concluded that Werner developed and
implemented its Payment Plan to recruit new drivers and retain current drivers. IRS
Notice of Proposed Tax Adjustment, ECF No. 320-3, Page ID 21666.
B. Eligible Student Drivers
Werner implemented its optional Payment Plan for student drivers in 2003, prior
to making it available to eligible experienced drivers. Werner’s student drivers
apprenticed with trainers and drove under supervision throughout an eight-week
program during which they generally were away from home. IRS App. Comm., ECF No.
320-3, Page ID 21674. At the conclusion of their initial two-day orientation, student
drivers elected whether to participate in the Payment Plan for the duration of the student
program. Because student drivers were regularly away from home throughout the
student program, all student drivers were eligible to participate in the Payment Plan.
Steele Affd., ECF No. 324-2, Page ID 23037. Upon completion and graduation from the
student program, drivers were required to indicate whether they would participate in the
Payment Plan as an experienced driver.
Student drivers abided by the same Home Time Tracker program as experienced
drivers for purposes of determining whether they were at home or away from home
overnight. In contrast to experienced drivers, students were not paid based on miles
driven. Rather, they were paid a taxable, flat daily rate that varied throughout the eightweek student program, progressively increasing as phases of the program were
successfully completed. Werner Handbook, ECF No. 317-36, Page ID 21426. Student
drivers participating in the Payment Plan received a low taxable daily rate and static
untaxed Payments for every day they were considered away from home overnight. Id.
The IRS-imposed M&IE rate on untaxed Payments was also applicable to students.6
Werner Handbook, ECF No. 317-36, Page ID 21425. Because student drivers’ taxable
pay and Payments were based on a daily rate rather than on miles driven, they were
paid as long as they were available for work; it was not necessary that they actually
performed work to receive their daily pay. 7 Werner summarized the student driver
Payment Plan in its educational materials with the following table:
Phase I: Students (Active Days 1-30)
- $1.86 taxable plus $41 non-taxable, daily;
- $13 taxable plus $287 non-taxable, weekly
Phase II: Students (Active Days 31-58)
- $5.43 taxable plus $41 non-taxable, daily;
- $38 taxable plus $287 non-taxable, weekly
Phase III: Students (Active Days 59+)
- $12.57 taxable plus $41 non-taxable, daily;
- $88 taxable plus $287 non-taxable, weekly
Werner’s Handbook explains to student drivers that the special transportation federal M&IE rate
was $41 per day. Werner Handbook, ECF No. 317-36, Page ID 21425.
Students were only allowed to drive with trainers. If a student was available to work, “but we
[Werner] [did not] have a trainer for him to go out with . . . we [Werner] pay him while he sits in a motel
and waits for that trainer, or sits at our terminal, say, and waits for a trainer.” Tisinger Depo., ECF No.
320-1, Page ID 21624.
Werner Educ. Materials, ECF No. 317-37, Page ID 21440.
When student drivers participating in the Payment Plan were considered at home
for a given day, they received the same taxable daily rate as non-participating student
drivers. Non-participating drivers were paid $46.43/day during Phase I; $50.00/day
during Phase II; and $53.57/day during Phase III, all of which was subject to
employment and income taxes. Werner Educ. Materials, ECF No. 317-37, Page ID
21432. Like experienced drivers, non-participating student drivers could validate and
deduct their meal and incidental expenses on their annual tax returns. Participating
student drivers could do the same only to the extent their expenses exceeded their
Payments. Id. Although drivers were separately and specifically reimbursed for workrelated expenses such as tolls and pay scales, this procedure was unnecessary for
student drivers because the accompanying training driver paid those expenses. Alicea
Depo., ECF No. 317-4, Page ID 20153-154.
Werner used a computer program that automatically calculated student drivers’
effective hourly rates on a weekly basis, regardless of participation in the Payment Plan.
Tisinger Depo., ECF No. 320-1, Page ID 21616-621. If the program calculated a
particular student’s hourly rate at less than the requisite minimum wage, supplemental
pay was automatically added to match the minimum wage rate. Id. Werner’s Chief
Financial Officer explained that the Payment Plan was suspended for student drivers in
or around January, 2013, pursuant to the advice of in-house legal counsel. Steele
Depo., ECF No. 317-3, Page ID 20111. There was no indication in the record that the
Payment Plan had been reinstated for student drivers.
C. All Payment Plan Participants
All Payment Plan participants received their untaxed Payments in the same
weekly check as their taxable pay, but the two amounts were separated and listed
under different headings. See, e.g., Pay Statements, ECF No. 317-35, Page ID 21400.
The untaxed Payment amounts were labeled “Per Diem” under the heading
“Reimbursement” and the regular taxable amounts were labeled “Regular Pay” under
the heading “Gross Earnings.” Id. Werner placed no restrictions on how drivers spent
their Payments and drivers were not required to validate their meal and incidental
expenses with receipts. IRS App. Comm., ECF No. 320-3, Page ID 21677; Byrd Depo.,
ECF No. 317-8, Page ID 20277. Drivers were separately and independently reimbursed
for work-related expenses such as tolls, scale tickets, and maintenance. Cortez Depo.,
ECF No. 317-11, Page ID 20418; Blanker Depo., ECF No. 317-7, Page ID 20259-260.
These reimbursable expenses were labeled accordingly and listed individually under the
heading “Reimbursements” along with, but independent of, the Payments labeled “Per
Diem.” Pay Statements, ECF No. 317-35, Page ID 21413. Drivers were required to
provide receipts for such work-related expenses before they were reimbursed, and they
were reimbursed for the exact amount reflected on the receipts.
Payment Plan participants had lower taxable incomes. Because certain benefits
such as Social Security and 401(k) contributions were based on taxable income, those
drivers who participated in the Payment Plan could be subject to reduced benefits that
correlate with taxable income. Werner Educ. Materials, ECF No. 317-37, Page ID
21432; Steele Depo., ECF No. 317-3, Page ID 20108. Werner included this information
in its orientation materials, see id.; however, Plaintiffs dispute whether Werner actually
provided drivers with the information, and assert that drivers were not adequately
advised about the potential reduction in benefits. While both parties acknowledge that
benefits based on taxable income were affected by the Payment Plan, Plaintiffs assert
the evidence does not establish whether Werner actually or adequately advised drivers
of the potential effects.
II. Accountable Plan
In order to provide the Payments free of employment and income taxes,
Werner’s Payment Plan had to qualify as an “accountable plan,” under IRS Treasury
Regulations. See Treas. Reg. § 1.62-2(c)(2). The amounts paid by an employer under
an accountable plan are excluded from employees’ gross income and exempt from the
withholding and payment of employment and income taxes. Treas. Reg. § 1.62-2(c)(2).
In order to qualify as an accountable plan, Werner’s Payment Plan needed to meet the
IRS regulations’ so-called business connection,9 substantiation, and return of excess
expenses requirements. Treas. Reg. § 1.62-2(c)-(f).
Initially, Werner consulted an accounting firm, KPMG, to assist with compliance
with accountable plan regulations and later consulted with another accounting firm,
See Treas. Reg. § 1.62-2(d)(1) & (d)(3)(i):
[A]n arrangement meets the [business connection requirement] if it provides advances,
allowances (including per diem allowances, allowances only for meals and incidental
expenses, and mileage allowances), or reimbursements only for business expenses that
are allowable as deductions by part VI (section 161 and the following), subchapter B,
chapter 1 of the Code, and that are paid or incurred by the employee in connection with
the performance of services as an employee of the employer. Treas. Reg. § 1.62-2(d)(1).
If a payor arranges to pay an amount to an employee regardless of whether the
employee incurs (or is reasonably expected to incur) business expenses of a type
described in paragraph (d)(1) or (d)(2) of this section, the arrangement does not satisfy
this paragraph (d) and all amounts paid under the arrangement are treated as paid under
a nonaccountable plan. See paragraphs (c)(5) and (h) of this section. Treas. Reg. § 1.622(d)(3)(i).
Deloitte & Touche. Wingert Depo., ECF No. 317-2, Page ID 20017. In 2003 and 2004,
Werner and Deloitte collected data for the IRS regarding the Payment Plan, and
eventually requested a private-letter ruling as to whether Werner’s Payment Plan
qualified as an accountable plan under the applicable regulations. Steele Aff., ECF No.
324-2, Page ID 23043.
Werner interviewed a sample of drivers and a fleet manager, and also relied on
Deloitte’s research, in an effort to estimate the expected daily meal and other incidental
expenses drivers would incur while traveling away from home overnight. Tax Dept.
Memo., ECF No. 317-32, Page ID 21187; Steele Depo., 317-3, Page ID 20091. Werner
used this data and Deloitte’s research to develop its Payment Plan and to represent to
the IRS that Werner had established a legitimate estimate of the meal and incidental
expenses drivers were “reasonably expected to incur . . . .” Tax Dept. Memo., ECF No
317-32, Page ID 21158-159 (“the drivers are reimbursed only for meal and incidental
expenses which drivers are reasonably expected to incur”); see also Treas. Reg.
§ 1.62-2(d)(3)(i). The IRS declined to issue the requested private-letter ruling and,
thereafter, Deloitte issued several opinion letters to Werner from 2004 through 2007,
opining that the Payment Plan complied with the applicable IRS requirements for
accountable plans. Id.
In January 2013, Werner received a Notice of Proposed Tax Adjustment from the
IRS for tax years 2009 and 2010, because a tax examiner concluded Werner’s Payment
Plan did not qualify as an accountable plan. The examiner concluded that the Payments
made under the Payment Plan should be subject to employment and income taxes. IRS
Notice of Proposed Tax Adjustment, ECF No. 320-3, Page ID 21670. It was specifically
determined that Werner’s Payment Plan did not satisfy the business connection
requirement for establishing an accountable plan.10 Id. The tax examiner found that
experienced drivers participating in the Payment Plan “receive approximately the same
cents per mile as those not on the Payment Plan but the cents per mile amount for
those on the Payment Plan is merely broken down into two components; taxable and
nontaxable.” IRS Notice of Proposed Tax Adjustment, ECF No. 320-3, Page ID 21666.
From that finding, the tax examiner concluded the Payment Plan “pays essentially the
same gross amount to drivers regardless of whether they incur (or are reasonably likely
to incur) travel expenses related to [Werner’s] business” and, thus, Werner simply
“recharacterized” a portion of drivers’ pay as non-taxable payments in an effort to attract
drivers and avoid withholding employment taxes. IRS Notice of Proposed Tax
Adjustment, ECF 320-3, Page ID 21669; see Treas. Reg. § 1.62-2(d)(3)(i).
On appeal, the IRS Appeals Commission decided Werner’s Payment Plan
satisfied the business connection requirement and qualified as an accountable plan.
IRS App. Comm., ECF No. 320-3, Page ID 21688. The IRS Appeals Commission found
that Werner did not simply “recharacterize” a portion of drivers’ pay, but rather based its
Payment Plan on research and data collected to estimate the expenses drivers are
reasonably likely to incur when traveling away from home overnight.
The Appeals Commission limited its analysis to whether the Payment Plan met
the regulations governing accountable plans and reached its decision independent of
whether Werner treated the Payments as compensation for minimum wage purposes
The tax examiner determined that the Payment Plan satisfied the substantiation and return of
excess expenses requirements; only the business connection requirement was found unsatisfied. IRS
App. Comm., ECF No. 320-3, Page ID 21681.
under state and federal law. See IRS App. Comm., ECF No. 320-3, Page ID 21678-688.
The only mention of minimum wage in the Appeals Commission’s analysis was in the
context of the student driver program. IRS App. Comm., ECF No. 320-3, Page ID 21675
(“Appeals is not sure what the importance of the minimum wage is since it is not
unusual for trainings in some occupations to not be paid wages at all and we are given
no analysis of what a student driver should be paid in wages.”). Therefore, Werner
satisfied the IRS Appeals Commission that the Payment Plan met all the requirements
associated with establishing an accountable plan.
STANDARD OF REVIEW
“Summary judgment is appropriate when the evidence, viewed in the light most
favorable to the nonmoving party, presents no genuine issue of material fact and the
moving party is entitled to judgment as a matter of law.” Garrison v. ConAgra Foods
Packaged Foods, LLC, 833 F.3d 881, 884 (8th Cir. 2016) (citing Fed. R. Civ. P. 56(c)).
“Summary judgment is not disfavored and is designed for every action.” Briscoe v. Cty.
of St. Louis, 690 F.3d 1004, 1011 n.2 (8th Cir. 2012) (quoting Torgerson v. City of
Rochester, 643 F.3d 1031, 1043 (8th Cir. 2011) (en banc)). In reviewing a motion for
summary judgment, the Court will view “the record in the light most favorable to the
nonmoving party . . . drawing all reasonable inferences in that party’s favor.” Whitney v.
Guys, Inc., 826 F.3d 1074, 1076 (8th Cir. 2016) (citing Hitt v. Harsco Corp., 356 F.3d
920, 923–24 (8th Cir. 2004)). Where the nonmoving party will bear the burden of proof
at trial on a dispositive issue, “Rule 56(e) permits a proper summary judgment motion to
be opposed by any of the kinds of evidentiary materials listed in Rule 56(c), except the
mere pleadings themselves.” Se. Mo. Hosp. v. C.R. Bard, Inc., 642 F.3d 608, 618 (8th
Cir. 2011) (quoting Celotex Corp. v. Catrett, 477 U.S. 317, 324 (1986)). The moving
party need not produce evidence showing “the absence of a genuine issue of material
fact.” Johnson v. Wheeling Mach. Prods., 779 F.3d 514, 517 (8th Cir. 2015) (quoting
Celotex, 477 U.S. at 325). Instead, “the burden on the moving party may be discharged
by ‘showing’ . . . that there is an absence of evidence to support the nonmoving party’s
case.” St. Jude Med., Inc. v. Lifecare Int’l, Inc., 250 F.3d 587, 596 (8th Cir. 2001)
(quoting Celotex, 477 U.S. at 325).
In response to the moving party’s showing, the nonmoving party’s burden is to
produce “specific facts sufficient to raise a genuine issue for trial.” Haggenmiller v. ABM
Parking Servs., Inc., 837 F.3d 879, 884 (8th Cir. 2016) (quoting Gibson v. Am.
Greetings Corp., 670 F.3d 844, 853 (8th Cir. 2012)). The nonmoving party “must do
more than simply show that there is some metaphysical doubt as to the material facts,
and must come forward with specific facts showing that there is a genuine issue for
trial.” Wagner v. Gallup, Inc., 788 F.3d 877, 882 (8th Cir. 2015) (quoting Torgerson, 643
F.3d at 1042). “[T]here must be more than the mere existence of some alleged factual
dispute” between the parties in order to overcome summary judgment.
Dickinson State Univ., 826 F.3d 1054, 1061 (8th Cir. 2016) (quoting Vacca v. Viacom
Broad. of Mo., Inc., 875 F.2d 1337, 1339 (8th Cir. 1989)).
In other words, in deciding “a motion for summary judgment, facts must be
viewed in the light most favorable to the nonmoving party only if there is a genuine
dispute as to those facts.” Wagner, 788 F.3d at 882 (quoting Torgerson, 643 F.3d at
1042). Otherwise, where the Court finds that “the record taken as a whole could not
lead a rational trier of fact to find for the non-moving party,” there is no “genuine issue of
material fact” for trial and summary judgment is appropriate. Whitney, 826 F.3d at 1076
(quoting Grage v. N. States Power Co.-Minn., 813 F.3d 1051, 1052 (8th Cir. 2015)).
Plaintiffs contend the Payments made to Werner drivers pursuant to the Payment
Plan are genuine reimbursements for expenses, and therefore should not be included in
the drivers’ “regular rate” under the Fair Labor Standards Act (“FLSA”), 29 U.S.C. § 201,
et seq., and applicable Department of Labor (“DOL”) regulations, 29 C.F.R. § 778.217.
Plaintiffs contend that Werner falls short of the minimum wage requirements of the
FLSA because Werner improperly includes the Payments to participating drivers in its
minimum wage calculations. ECF No. 353, Page ID 24485. Plaintiffs similarly assert that
the Payments are not “wages” as defined by the Nebraska Wage and Hour Act, Neb.
Rev. Stat. § 48-1200, et seq., and the Nebraska Wage Payment and Collection Act,
Neb. Rev. Stat. § 48-1228, et seq. As a result, Plaintiffs claim that Werner failed to
provide drivers participating in the Payment Plan the requisite minimum wage under
Nebraska law. Id. Plaintiffs also raise claims for unjust enrichment, breach of contract,
and breach of implied contract for failing to pay Plaintiffs the minimum wage.
I. Plaintiffs’ FLSA Claims
Section 206 of the FLSA requires that every employer engaged in commerce pay
a statutorily mandated minimum wage. 29 U.S.C. § 206. An employer violates the
FLSA’s minimum wage requirement when an employee’s “regular rate” drops below the
minimum wage. See § 206; 29 C.F.R. § 778.217(a). Section 207 defines the regular
rate, stating, “[a]s used in this section the ‘regular rate’ at which an employee is
employed shall be deemed to include all remuneration for employment paid to, or on
behalf of, the employee.” Thus, “[t]here is a statutory presumption ‘that remuneration in
any form is included in the regular rate calculation.’” Acton v. City of Columbia, Mo., 436
F.3d 969, 976 (8th Cir. 2006) (quoting Madison v. Res. for Human Dev. Inc., 233 F.3d
175, 187 (3d Cir. 2000)). However, § 207(e) excludes some forms of payment from the
regular rate calculation. Specific to this case, § 207(e)(2) excludes reimbursements for
certain expenses incurred by an employee in furtherance of the employer’s interests.
The statute provides:
[P]ayments made for occasional periods when no work is performed due
to vacation, holiday, illness, failure of the employer to provide sufficient
work, or other similar cause; reasonable payments for traveling expenses,
or other expenses, incurred by an employee in the furtherance of his
employer’s interests and properly reimbursable by the employer; and other
similar payments to an employee which are not made as compensation for
his hours of employment . . . .
29 U.S.C. § 207(e)(2). The applicable FLSA regulations provide further guidance as to
the types of reimbursements under § 207(e)(2) that are excluded from the “regular rate”
calculation. See 29 C.F.R. § 778.217. Regarding such reimbursements, the C.F.R.
states the following general rule:
Where an employee incurs expenses on his employer’s behalf or where
he is required to expend sums solely by reason of action taken for the
convenience of his employer, section 7(e)(2) is applicable to
reimbursement for such expenses. Payments made by the employer to
cover such expenses are not included in the employee’s regular rate (if
the amount of the reimbursement reasonably approximates the expenses
incurred). Such payment is not compensation for services rendered by the
employees during any hours worked in the workweek.
29 C.F.R. § 778.217(a). By way of illustration, § 778.217(b)(3) states that transportation
and living expenses incurred by an employee who is travelling “over the road” on his
employer’s business are expenses which primarily benefit the employer and “will not
generally be regarded as part of the employee’s regular rate.”
The regulation makes clear that not all payments for expenses incurred while an
employee is away from home are excluded from the employee’s regular rate for
minimum wage purposes. Section 778.217(d) explains:
The expenses for which reimbursement is made must in order to merit
exclusion from the regular rate under this section, be expenses incurred
by the employee on the employer's behalf or for his benefit or
convenience. If the employer reimburses the employee for expenses
normally incurred by the employee for his own benefit, he is, of course,
increasing the employee’s regular rate thereby. An employee normally
incurs expenses in traveling to and from work, buying lunch, paying rent,
and the like. If the employer reimburses him for these normal everyday
expenses, the payment is not excluded from the regular rate as
“reimbursement for expenses.” Whether the employer “reimburses” the
employee for such expenses or furnishes the facilities (such as free
lunches or free housing), the amount paid to the employee (or the
reasonable cost to the employer or fair value where facilities are
furnished) enters into the regular rate of pay as discussed in § 778.116.
§ 778.217(d) (emphasis added).
Plaintiffs claim the Payments made pursuant to the Payment Plan are
reimbursable expenses under 29 U.S.C.A. § 207 and 29 C.F.R. § 778.217(a), and thus
excludable from the regular rate calculation for purposes of evaluating Werner’s
compliance with FLSA minimum wage requirements. The Court must determine
whether the Payments are valid reimbursable expenses, or whether the Payments are
included in the Plaintiffs’ regular rate. In making this determination, the Court notes that
it is not bound by the labels used by the parties. Instead, the goal of the Court’s analysis
“is to pierce the labels that parties affix to the payments and instead look to the realities
of the method of payment.” Newman v. Advanced Tech. Innovation Corp., 749 F.3d 33,
39 (1st Cir. 2014); see also 29 C.F.R. § 778.108 (“The ‘regular rate’ of pay under the
[FLSA] cannot be left to a declaration by the parties as to what is to be treated as the
regular rate for an employee; it must be drawn from what happens under the
employment contract”) (internal citations omitted).
As noted above, DOL regulations state that per diem payments are not included
in the regular rate where “an employee incurs expenses on his employer’s behalf or
where he is required to expend sums solely by reason of action taken for the
convenience of his employer” so long as “the amount of the reimbursement reasonably
approximates the expenses incurred.” 29 C.F.R. § 778.217(a). Thus, the Court must
Payments made under the
reimbursements for expenses incurred solely for Werner’s benefit or convenience, and
(2) whether the Payments approximated actual expenses. The Court concludes, as a
matter of law, that the Payments were not reimbursements for expenses incurred solely
for Werner’s benefit, and there is insufficient evidence to show the Payments
approximated actual expenses.
A. Expenses Incurred for Werner’s Benefit
The Payments do not represent reimbursements for expenses incurred solely for
Werner’s benefit, because the Payments were compensation for work performed. As
noted above, a “payment by way of reimbursement” under § 778.217(b) is not included
within the regular rate; however, “[i]f the employer reimburses the employee for
expenses normally incurred by the employee for his own benefit, he is, of course,
increasing the employee’s regular rate thereby.” § 778.217(d). To resolve whether a
payment is a reimbursement or compensation included within the regular rate courts
look to whether the true purpose of the payment at
employees for their work or to reimburse employees for expenses incurred for
purposes of work. See Acton, 436 F.3d at 977 (“The plain language of the regulation
makes clear that all monies paid as compensation for either a general or specific workrelated duty should be included in the regular rate.”); see also Sharp v. CGG Land Inc.,
840 F.3d 1211, 1216 (10th Cir. 2016) (interpreting 29 U.S.C. § 207(e)(2) as exempting
from the regular rate expenses “incurred by an employee in the furtherance of his
employer’s interests and properly reimbursable by the employer” but not excluding
payments made “as compensation for his hours of employment”).
Plaintiffs argue that because the Payments were made to drivers while away
from home, the Payments were for the primary benefit of Werner. Werner argues that
the Payments were in the form of a wage because the purpose of the Payments was to
compensate drivers for work performed. The Court concludes that the Payments were
in the nature of a wage. First, the Payments to experienced drivers varied with the
amount of work performed. Second, the characteristics of the Payments made to both
experienced and student drivers demonstrate that the Payments functioned as a wage
rather than a true per diem reimbursement.
1. Variable Nature of Payments
a. DOL Handbook and Interpretive Case Law
Payments to experienced drivers acted as compensation for work performed
because the Payments were based on miles driven. The DOL provided additional,
explicit guidance on how to determine whether payments that are classified as per diem
reimbursements are part of an employee’s regular rate. The DOL’s Field Operations
Handbook11 states “[i]f the amount of per diem or other subsistence payment is 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.” DOL Field Operations Handbook,
§ 32d05(c) (October 2016). Several courts have used this guidance in concluding that
per diem payments that vary with the amount of work performed are part of the regular
rate. See Newman, 749 F.3d at 37-38 (concluding that a purported per diem payment
was part of a regular rate where the payment was based on the number of hours
worked); Gagnon, 607 F.3d at 1041-42 (concluding that a per diem payment was part of
the regular rate because the payment varied by the hours worked); see also Hanson v.
Camin Cargo Control, Inc., No. H-13-0027, 2015 WL 1737394, at *13-15 (S.D. Tex. Apr.
16, 2015) (concluding that per diem that varied with the amount of hours worked was
part of the regular rate).
In Gagnon, the plaintiff, a skilled aircraft painter, was paid an hourly rate of $5.50
per hour, an overtime rate of $20 per hour, and a “per diem” rate of $12.50 per hour.
See Gagnon, 607 F.3d at 1039. The painter sued his employer, asserting the payment
scheme violated the FLSA because it reduced the amount of overtime compensation
the painter would have received. See id. at 1040. The district court concluded that the
“per diem” should have been included in the painter’s regular rate of pay for purposes of
calculating overtime compensation. See id. at 1040–41. The United States Court of
Appeals for the Fifth Circuit affirmed, reasoning that because the per diem varied with
The parties do not dispute that the Handbook’s guidance has persuasive impact on this case.
See Gagnon v. United Technisource, Inc., 607 F.3d 1036, 1041 n.6 (5th Cir.2010) (“Although the
Handbook does not bind our analysis, we can and do consider its persuasive effect.” (citing Skidmore v.
Swift & Co., 323 U.S. 134, 140 (1944))).
the amount of hours worked, “the per diem payments were part of the regular rate in
their entirety.” Id. at 1041.
Similarly, in Newman, two engineers were hired to jobs that required them to
work away from their homes. 749 F.3d at 35. Both the engineers’ employment
agreements listed a set hourly wage, an overtime wage, and a weekly per diem
payment that was subject to a daily and weekly cap. Id. To receive the per diem
payment, each engineer signed a Consultant Per Diem Certification that provided for
reimbursement “for any business expenses on a per diem basis” using the relevant
Internal Revenue Service Federal Travel Reimbursement rate. Id. The first of the
engineers was eligible for per diem payments for “each day actually worked” up to
seven days. Id. The second engineer was also eligible for per diem, but the per diem
was capped at a weekly maximum of five days if each day was “actually worked.” Id.
The per diem payments for each engineer, if calculated by the hour, made up the
difference between the regular hourly wage paid, and the promised wage of $60 per
Both engineers sued their employer under the FLSA arguing that the per diem
operated like an hourly wage and should count as part of the regular rate for purposes
of calculating overtime under the FLSA. Id. Just as in Gagnon, the United States Court
of Appeals for the First Circuit looked to the DOL’s Field Operations Handbook to
determine whether the per diem payments were part of the regular rate. Id. at 37 (citing
§ 32d05(c)). The First Circuit examined the per diem payments and concluded that the
per diem payments were based on the number of hours worked, and therefore should
be included in the regular rate.
Similar to Gagnon and Newman, qualified, non-student drivers in this case
received per diem payments according to the amount of work performed. There is no
material dispute that drivers were paid by the mile, at varying mileage rates. Tisinger
Aff. ¶12, ECF No. 92-1, Page ID 1055. If a qualified driver elected to enroll in the per
diem program, a portion of the driver’s pay was classified as per diem pay, and per
diem pay was calculated based on the miles driven using a per diem mileage rate. See
ECF No. 317-35, Page ID 21413-14. For example, Plaintiff David Faykosh was paid at a
rate of 12 cents per mile in per diem pay and taxable pay at rates varying from 13 to 33
cents per mile. During the period for his earning statement dated November 27, 2009,
Faykosh received $180.84 in per diem pay and $301.56 in taxable pay when he drove
1,507 miles. ECF No. 317-35, Page ID 21413. However, he received only $28.68 in per
diem pay when he drove only 239 miles in a different pay period. ECF No. 317-35, Page
ID 21414. Similarly, Plaintiff Lance Edwards was paid at a rate of 12 cents per mile in
per diem pay and taxable pay at rates ranging from 12 to 22 cents per mile. ECF No.
317-35, Page ID 21423. On his June 16, 2011, earnings statement, Edwards received
$140.16 in per diem pay for 1,168 miles driven. Id. However, when Edwards drove
2,438 miles during a different pay period, he received a correspondingly higher per diem
payment of $292.56. Ex. 1-JJ, ECF No. 317-35, Page ID 21424.
The undisputed evidence demonstrates that drivers opting to receive Payments
under the per diem Payment Plan were paid by the mile. Thus, the amount of per diem
each qualified driver received was based on the amount of work that the driver
performed. Just as the payments to the plaintiffs in Gagnon and Newman varied with
the amount of hours worked, Payments to non-student drivers under the per diem
program were “based upon and thus varie[d] with” the amount of work performed. See
§ 32d05(c). Accordingly, under the guidance provided in the DOL Handbook, the
Payments to experienced drivers were “a part of the regular rate in their entirety.” Id.
b. Miles Driven v. Hours Worked
Plaintiffs argue that § 32d05(c) and the reasoning in Gagnon and Newman do
not apply to this case because the Handbook and the decisions each refer to “hours
worked,” whereas the qualified, non-student drivers in this case received Payments
based on “miles driven.”
Yet there is no indication that the principle stated in
§ 32d05(c), and applied in Gagnon and Newman, was meant to be tied solely to
payments made in the form of an hourly rate. Courts have considered wages linked to
work performed in determining whether such wages should be included in the regular
rate. For example, in Walling v. Youngerman-Reynolds Hardwood Co., 325 U.S. 419,
424–25 (1945), workers employed to stack boards were compensated at agreed piece
rates per thousand board feet stacked rather than an hourly rate. Id. at 421. To
determine the regular rate, the Supreme Court translated the wage per thousand feet to
an average hourly wage. Id. The Court concluded that the employer in Walling failed to
provide an appropriate overtime wage based on the average hourly wage, in violation of
the FLSA. Id. Thus, the Supreme Court was able to make a determination of the regular
rate even though the plaintiffs were paid at a non-hourly wage.
The language of § 32d05(c) demonstrates that to qualify as a true per diem
payment, excludable from the regular rate, a payment must be based on days worked
rather than some other measuring unit such as hours or miles. The full text of
§ 32d05(c) states:
If the amount of per diem or other subsistence payment is 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. However, this does
not preclude an employer from making proportionate payments for that
part of a day that the employee is required to be away from home on the
employer’s business. For example, if an employee returns to his/her home
or employer’s place of business at noon, the payment of only one-half the
established per diem rate for that particular day would not thereby be
considered as payment for hours worked and could thus be excluded from
the regular rate.
The court in Newman recognized that the language of § 32d05(c) creates some tension
because it permits an employer to reduce a per diem payment where an employee
worked a half day, but states that per diem is part of the regular rate if it varies with the
hours worked in a week or day. 749 F.3d at 37-38. The court resolved this tension by
concluding that “the Handbook’s teaching is that the method of calculating the per
diem . . . must use a day as its measuring unit, and not an hour.” Id. at 38. The First
Circuit determined that the per diem payments in Newman were wages because
reductions in per diem received were based on hours worked, rather than days worked.
Id. at 39. “Although the Handbook provision allows a discount in the per diem for partial
days, it does not permit an employer to set this discount as a reduction of a fixed
amount for each missing hour in the weekly total.” Id. at 39-40.
In this case, Payments to participating, non-student drivers were based on miles
driven, not on days worked or days away from home. Participating drivers were working
when they were driving and the Payments they received varied according to the amount
of work they performed. There is no reason to conclude that per diem payments
measured by the hour would be included in the regular rate under § 32d05(c), while per
diem payments measured by some other method smaller than half a day would not. In
both cases, per diem payments were measured by units smaller than half a day. As
stated in Newman, a reduction in per diem payment by such measurements “runs afoul
of the Handbook’s guidance.” 749 F.3d at 38. The Court concludes that the Payments in
this case fall within the language of § 32d05(c) even though the Payments are based on
miles driven rather than hours worked.12
The undisputed evidence also shows that the drivers’ wages, and consequently
the Payments received, actually varied according to the number of hours worked. Using
an example from above, the record shows that Plaintiff Lance Edwards earned $269.64
in per diem pay during the week of October 23, 2012, through October 29, 2012, when
he was on duty 64.25 hours and drove 2,247 miles. Edwards Pay Data, ECF No. 366-5,
Page ID 24713-14; Edwards’ Driver Log Data, ECF No. 366-6, Page ID 24715-21. The
next week, Edwards was on duty 32.25 hours and drove 1,295 miles. Id. Edwards
earned less per diem pay ($155.40) that week. Id. Similarly, Plaintiff Joseph Horton
earned $92.52 in per diem pay during the week of July 10, 2012, through July 16, 2012,
when he was on duty a total of 30.25 hours and drove 771 miles. Horton’s Pay Data,
ECF No. 366-7, Page ID 24722; Horton’s Driver Log Data, ECF No. 366-8, Page ID
24724-31. The next week, Horton worked more hours (61.75 hours), drove more miles
(1,878 miles), and consequently earned more per diem pay ($225.36 in per diem pay).
Id. The following week, Horton worked only 44.5 hours, thus he drove fewer miles
(1,704 miles) and therefore earned less per diem pay ($204.48). Id.
Plaintiffs also claim that the Payments did not vary with the amount of hours worked because
the daily per diem Payments were capped at $52.00 per day. As noted above, per diem payments to the
engineers in Newman were also capped at a specific amount. See 749 F.3d at 35. As in Newman, the
cap in this case does not preclude the Court from examining whether the Payments were made as an
hourly wage or as a true reimbursement for expenses.
The undisputed evidence shows that participating, non-student drivers’ Payments
varied with the amount of work performed. The amount of Payments to non-student
drivers was determined solely by the amount of miles driven. Accordingly, the amount
of the Payment was based on work performed, and varied in correlation with the amount
of hours worked. Accordingly, the Payments should be included in their entirety as part
of the drivers’ regular rate. See § 32d05(c).
2. Disparity Between Wages and Per Diem Payments
Several other characteristics of the Payments suggest they were intended to
compensate employees for work performed rather than act as a true reimbursement.
First, the total pay—Payments plus applicable taxable wage—to both participating nonstudent drivers and to student drivers was “suspiciously close” to the total taxable wage
paid to non-participants. See Gagnon, 607 F.3d at 1041. In Gagnon, in addition to
holding that the per diem payment varied with the amount of work performed, the Fifth
Circuit found it “difficult to believe that a skilled craftsman would accept a wage so close
to the minimum wage when the prevailing wage for similarly skilled craftsmen was
approximately three times the minimum wage.” Id. The court was also “troubled by the
fact that the combined ‘straight time’ and ‘per diem’ hourly rates approximately match
the prevailing wage for aircraft painters.” Id.
In this case, both the experienced and student drivers electing to participate in
the Payment Plan received artificially low wages, and when the Payments were factored
in, their net pay was identical to or close to that of other employees who opted out of the
Payment Plan. For example, in its educational materials given to new drivers, and as
shown in Table 1 above, a driver who did not participate in the Payment Plan, and who
earned 28 cents per mile over 2,300 miles would earn $461.59 in net pay. Werner Educ.
Materials, ECF No. 317-37, Page ID 21442. The entire 28 cents per mile took the form
of taxable wages. Had the same driver elected to participate in the Payment Plan, the
driver would be paid at a taxable rate of 17 cents per mile, but would receive a nontaxable per diem Payment of 10 cents per mile. Thus, the participating driver’s total rate
per mile would be 27 cents, nearly identical to the rate per mile of the non-participating
driver. As a result, the participating driver’s per diem Payments, the driver’s total net pay
over the same period would be $506.01.
For student drivers, the result would be similar. Student drivers were provided
with the following example of the impact per diem enrollment would have on their
Werner Educ. Materials, ECF No. 317-37, Page ID 21431. Although the taxable wages
that participating students received was far lower than those received by nonparticipating students, participating students’ total gross pay, including the Payments,
was similar to other qualified student drivers.
This table also illustrates the disparity between the taxable wages of nonparticipating students and students who participated in the Payment Plan. Similar to the
painter in Gagnon, it is difficult to believe that a participating student would accept a
daily taxable wage of $1.86 while a similarly qualified student’s rate would be more than
20 times larger. The disparity in taxable wages between non-participating and
participating drivers and student drivers demonstrates that the Payments were intended
to be compensation for services rather than a true reimbursement of expenses. For
these reasons, these factors suggest the Payments were principally a wage intended to
benefit the employees.
3. Form and Purpose of Payment
The form and purpose of the Payments also suggest they were intended to act
as remuneration for work performed, rather than as reimbursement for expenses. In B &
D Contracting v. Pearley, 548 F.3d 338, 343 (5th Cir. 2008), the Fifth Circuit addressed
whether per diem payments to a ship worker played the role of wages under the
Longshore and Harbor Workers’ Compensation Act (“LHWCA”), 33 U.S.C. § 902(13).13
The Fifth Circuit expressly noted that the definition of wages under the FLSA is different from
the definition of wages under the LHWCA. B & D Contracting, 548 F.3d at 343. In B & D Contracting, the
employer argued a non-taxable per diem fell outside the definition of wages under the LHWCA. The Fifth
Circuit interpreted the LHWCA’s definition of wages as the “money rate at which the employee is
compensated plus any taxable advantages.” Id. at 341 (internal quotation marks omitted). In addition the
court examined the per diem’s characteristics and concluded that the payments “played the role of wage.”
Id. at 342-43. The employer argued that this is inconsistent with the court’s previous determination that a
per diem was not a wage under the FLSA. Id. (citing Berry v. Excel Group, Inc., 288 F.3d 252 (5th Cir.
2002)). The Fifth Circuit noted that the definition of wages under the FLSA was different than the
definition of wages under the LHWCA, but also specifically stated that the per diem payments in Berry
were “legitimate, reasonable reimbursements for travel expenses.” Id. (citing Berry, 288 F.3d at 254).
The Court reads the Fifth Circuit’s opinion in B & D Contracting as recognizing that the definition
of wages under the LHWCA explicitly includes non-taxable payments to be part of an employee’s wages,
while the FLSA does not. However, although the two statutes are different, the analysis of whether a per
diem functions as a wage is the same under either statute. That is, even though the definitions differ,
there is no logical reason that characteristics of a wage under the LHWCA, exclusive of express statutory
The court determined that a per diem payment “played the role of wages” because the
were calculated based on the number of hours worked; they were paid in
the same paycheck as the employee’s normal wages; the per diem was
an unrestricted payment, unrelated to actual costs of meals, lodging, or
travel; the same per diem was paid to all employees regardless of where
they live; and the per diem constituted almost half of [the employee’s]
B & D Contracting, 548 F.3d at 343.
Each of these characteristics are present for the Payments in this case. As
noted above, Payments for all drivers other than students and co-drivers were based on
the number of miles driven and consequently correlated with the number of hours
worked. Also, drivers received non-taxable per diem pay and taxable wages in the
same paycheck. See, e.g., Faykosh Statement of Earnings, E C F N o . 3 1 7 - 3 5 ,
P a g e I D 21413; see also, e.g., Kinnison Depo., ECF No. 317-21, Page ID 20750.
For participating drivers and students, the Payments constituted a significant
portion of their total paycheck. See B & D Contracting, 548 F.3d at 343 (concluding that
per diem acted as wages where the per diem payment constituted nearly half of the
employee’s gross pay). For example, Named Plaintiff David Faykosh received $180.84
in per diem pay and $301.56 in taxable mileage pay in one paycheck. Faykosh
Statement of Earnings, E C F N o . 3 1 7 - 3 5 , P a g e I D 21413. Thus, for that week,
his per diem pay represented almost 40 percent of his total pay. Id. This result was even
more pronounced for students. Participating student drivers were paid at flat daily rates
that varied during the class period, a portion of which was labeled as per diem pay.
characteristics, would not also qualify as “compensation for . . . hours of employment” under 29 U.S.C.
S e e , e . g . , ECF No. 317-37, Page ID 21440. For example, during a period when
student drivers were paid $46.43 per day ($325/week) the per diem portion of their
pay could amount to $287.00— or 88 percent—of a student driver’s total weekly pay.
See, e.g., Excerpts of Pay Statements, Student Driver Statements of Earnings for Scott
Larrow, ECF No. 317-35, Page ID 21400-05. During a period when student drivers
were paid $53.57/day ($375/week), the per diem portion of their pay could amount to
$336—89 percent—of their total pay. See, e.g., Excerpts of Pay Statements, Student
Driver Statements of Earnings for Yassine Baouch, ECF No. 317-35, Page ID 2140612. That per diem Payments made up such a substantial portion of total pay suggests the
Payments acted as compensation rather than a true reimbursement. This is especially
evident considering that other similarly qualified drivers could simply choose not to
receive the per diem Payments and receive roughly equal pay in the form of taxable
Like the payments in B & D Contracting, the Payments to participating drivers
were unrestricted. In Gonzales Elec. Sys. v. Dir., Office of Workers’ Comp. Programs,
496 F. App’x 378, 383 (5th Cir. 2012), the court concluded that per diem payments were
more in the form of wages because, in part, employees could spend the payments in
any manner and were not required to report expenses. Similarly, here, there were no
restrictions on how drivers spent their per diem Payments. When drivers incurred
expenses of less than the amount of the weekly per diem payments, they were free to
retain the excess for any purpose. See, e.g., Byrd Depo. 23:11-14, ECF No. 317-8,
Page ID 20277; Conner Depo. 24:18-23, ECF No. 317-10, Page ID 20386; Blanker
Depo. 12:21- 24, ECF No. 317-7, Page ID 20256. The unrestricted nature of the per
diem Payments suggests they acted as compensation rather than reimbursement.
Finally, because Werner introduced the per diem Payments as a means to attract
new employees, they more likely acted as wages. In B & D Contracting, the court noted
that the “per diem payments were designed to maximize employees’ take home pay,
provide tax benefits to the employer, and keep up with B&D’s competitors that paid
employees in a similar manner.” 548 F.3d at 342-43. Similarly, in Gonzales, the
employer testified that the per diem payments were intended, at least in part, to make
the job more attractive to potential employees.” 496 F. App’x at 383. In both cases, the
fact that the per diem payments were intended to be used as a recruitment tool
suggested the payments acted as wages. B & D Contracting, 548 F.3d at 343;
Gonzales, 496 F. App’x at 383.
In this case, Werner originally developed the per diem program as an incentive to
attract potential employees. Tisinger Aff. ¶ 4, ECF No. 92-1, Page ID 1053. At least one
Werner official testified that Werner originally began exploring the option of developing a
per diem program for its drivers to keep pace with the industry, because other trucking
companies had similar programs and drivers frequently asked during recruitment
whether Werner had a per diem program. Wingert Depo. 20:18-21:21, ECF No. 317-2,
Page ID 20016. Werner’s purpose was for its drivers to receive more take home pay by
reclassifying a portion of the drivers’ existing pay as a non-taxable per diem payment so
drivers would have fewer employment taxes and income taxes taken out of each
paycheck. Wingert Depo. 28:20-30:16, ECF No. 317-2, Page ID 20018-19. Moreover,
Werner advised drivers that enrollment in the per diem program would increase their
take home pay. Company Drivers Per Diem Pay Program Handouts, ECF No. 317-37,
Page ID 21444; Student Driver Per Diem Handout, ECF No. 317-37, Page ID 21431.
Because the evidence establishes that Werner implemented the per diem program as a
means of recruiting drivers, this factor also weighs in favor of concluding the per diem
payment is a wage.
4. Benefit of Employer
Payments to participating, non-student drivers varied with the amount of work the
driver performed. The Payments to both drivers and students have the characteristics of
a wage. The undisputed evidence demonstrates that the per diem Payments under the
Payment Plan were in the form of a wage, made “as compensation for . . . employment.”
29 U.S.C. § 207(e). The Payments are compensation as a matter of law, and not
expenses “incurred by an employee in the furtherance of his employer's interests and
properly reimbursable by the employer.” § 207(e)(2). Accordingly, the Payments are
included within the regular rate calculation.
B. Reasonable Approximation of Actual Expenses
Plaintiffs argue that the per diem Payments constitute valid reimbursements
under 29 C.F.R. § 778.217(b), and therefore should not be included within the regular
rate under 29 U.S.C. § 207(e)(2). To support this assertion, in addition to showing that
the Payments are for the primary benefit of Werner, the evidence must show “the
amount of the reimbursement reasonably approximates the expenses incurred.”
§ 778.217(a). The regulations also state that “only the actual or reasonably approximate
amount of the expense is excludable from the regular rate. If the amount paid as
‘reimbursement’ is disproportionately large, the excess amount will be included in the
regular rate.” 29 C.F.R. § 778.217(c).
Plaintiffs encounter a significant hurdle because the statute and its implementing
regulations do not appear to permit proof of reasonable reimbursement on a group
basis. The regulations applicable to Plaintiffs’ claimed exemption use the singular term
“employee.” See 29 C.F.R. § 778.217(b), (d). The FLSA defines the term “employee” as
“an individual employed by an employer.” 29 U.S.C. § 203(e)(1) (emphasis added). The
Eastern District of Texas explained:
The court believes that a fair reading of the language in [§ 778.217(d)] and
the FLSA in general demonstrates that it is proper to determine per diem
payments in terms of individual employees. By this the court means that
employers may choose to set an amount that they deem to be a
reasonable per diem for a group of workers, but they do so at risk of
violating the FLSA. This is because any amount set aside as per diem
must reasonably approximate the actual amount of expenses incurred by
each individual employee. If the per diem meets this test as to each
employee, that amount properly can be excluded from each employee’s
regular rate of pay. In other words, the court will measure the
reasonableness of the employer’s per diem policy on an employee by
employee basis to see if the amount paid reasonably approximates each
individual employee’s excludable expenses.
Picton v. Excel Grp., Inc., 192 F. Supp. 2d 706, 712 (E.D. Tex. 2001) (emphasis added).
Plaintiffs must overcome this statutory language by demonstrating that the
Payments to the class of over 52,000 Plaintiff-drivers “reasonably approximates the
expenses incurred.” See § 778.217(a). Plaintiffs attempt to do this in two principal
ways. First, Plaintiffs argue that the depositions of a sample of Plaintiff-drivers
demonstrate that the per diem Payments were reasonable on a class-wide basis.
Second, and primarily, the Plaintiffs argue that Werner is judicially estopped from
asserting that the Payments were not reasonable reimbursements because Werner
previously represented that Payments were a reasonable approximation. The Court
concludes that neither of these arguments satisfies the statutory and regulatory
language, and Plaintiffs have not shown that the Payments reasonably approximated
each individual Plaintiff-driver’s excludable expenses.
1. Representative Depositions
In support of their argument that the drivers incurred meal and incidental
expenses and the per diem Payments approximated the amounts incurred, Plaintiffs cite
the testimony of 16 Plaintiff-drivers who each testified they incurred expenses ranging
from $50 per day to $70 per day. As an initial matter, this representative portion of the
class—16 out of 52,000 or roughly 0.0003 percent—is too small a statistical sampling to
prove the expenses incurred by each individual driver. See Espenscheid v. DirectSat
USA, LLC, 705 F.3d 770, 774 (7th Cir. 2013) (testimony from 42 representative
members of a proposed class of 2,341 technicians was an insufficient basis for
drawing class-wide conclusions); id. at 775 (7th Cir. 2013) (“[The] experience of a
small, unrepresentative sample of [‘thousands of workers’] cannot support a just and
reasonable inference” concerning all class members); Reich v. S. Md. Hosp., 43 F.3d
949, 952 (4th Cir. 1995) (vacating an award of liquidated damages because testimony
from only 1.6 percent of the employee population, or 54 of 3,368 employees, did not
fairly represent the employee population and noting “1.6% sample constitutes the
lowest percentage by far in any reported case using representative testimony”); Int'l
Bhd. of Teamsters v. United States, 431 U.S. 324, 339 n.20 (1977) (“Considerations
such as small sample size may, of course, detract from the value of such
evidence . . . .”).
In addition to the small sample size, Werner presented evidence from a similar
number of class members that spent $12 to $22 less per day on expenses than the
Plaintiff-drivers cited by Plaintiffs. In either case, the deposition testimony cited is
insufficient to establish that the amount of the Payments approximated expenses
actually incurred by Plaintiffs.
2. Judicial Estoppel
Because Plaintiffs lack direct evidence that the Payments approximated
expenses actually incurred, Plaintiffs assert that Werner is estopped from arguing the
Payments were not reasonable or did not approximate actual expenses. Plaintiffs rely
primarily on Werner’s representations to the IRS. In its request for a private-letter ruling
and its appeal, Werner represented to the IRS that its Payment Plan was based on
expenses it reasonably expected drivers to incur while away from home overnight.
Plaintiffs contend that this representation conclusively establishes that the Payments
must be excluded from drivers’ regular rate under the doctrine of judicial estoppel. The
Court concludes, however, that Werner’s position in this case is not clearly inconsistent
with the position it took before the IRS and its representations to the IRS do not require
the exclusion of the Payments from the drivers’ regular rate.
“The doctrine of judicial estoppel prevents a party from taking a position during
litigation which is contrary to one taken in a prior judicial or quasi-judicial proceeding.”
Amtrust Inc. v. Larson, 388 F.3d 594, 600 (8th Cir. 2004). “The underlying purpose is to
protect the integrity of the judicial process.” Bendet v. Sandoz Pharm. Corp., 308 F.3d
907, 910 (8th Cir. 2002) (citing New Hampshire v. Maine, 532 U.S. 742, 749–50
(2001)). The Supreme Court has recognized that the application of judicial estoppel is
not “reducible to any general formulation of principle.” New Hampshire, 532 U.S. at 750.
There are, however, factors that guide a court’s decision to apply judicial estoppel: (1)
whether a party’s position is clearly inconsistent with its prior position, (2) whether the
party against whom estoppel is asserted succeeded in persuading a court to accept its
earlier position, and (3) whether the party asserting an inconsistent position gains an
unfair advantage or imposes an unfair detriment upon the opposing party if not
estopped. Id. at 751. The foregoing factors are not “inflexible prerequisites” or
exhaustive considerations; “additional considerations may inform the doctrine’s
application in specific factual circumstances.” Id.
In order to satisfy the IRS that it had met all aspects of the accountable plan
requirements—specifically, the business connection requirement—Werner represented
to the IRS that the Payments would be based on prospective estimates of the expenses
that drivers were reasonably expected to incur while away from home overnight. ECF
No. 317-32, Page ID 21158-59; 21203. Werner based its estimates of expected
business expenses by interviewing three of its drivers and one of its fleet managers.
Tax Memo., ECF No. 317-32, Page ID 21187. Werner took this position ostensibly
because the Payment Plain would only qualify as an accountable plan if the employee
incurred “or [was] reasonably expected to incur” business expenses. See Treas. Reg.
§ 1.62-2(d)(3)(i). Thus, Werner chose to attempt to prove prospectively that its
employees participating in the Payment Plan were reasonably expected to incur
qualifying business expenses.
Werner’s position before the IRS is not inconsistent with the position it takes in
this case. As noted above, § 778.217(a) of the DOL regulations provides that certain
payments made by the employer to cover reimbursable expenses “are not included in
the employee’s regular rate (if the amount of the reimbursement reasonably
approximates the expenses incurred).” 29 C.F.R. § 778.217(a) (emphasis added).
Plaintiffs assert that Werner’s representations to the IRS regarding the business
connection requirement14 satisfy the final, parenthetical clause of § 778.217(a), thus
establishing that the Payments made pursuant to the Payment Plan should not be
included in drivers’ regular rate. See, e.g., Pl.’s Br. in Opp. to Def.’s Mot. Summ. J., ECF
No. 353, Page ID 24505. However, the IRS regulations governing accountable plans
are not identical to the DOL regulations governing employees’ regular rates for
minimum wage purposes. To approve an accountable plan, the IRS required that the
Payments represent an amount paid to an employee for expenses he or she was
“reasonably expected to incur.” Treas. Reg. § 1.62-2(d)(3)(i). In contrast, 29 C.F.R.
§ 778.217(a) requires the Court to determine, in part, whether the Payments
approximated expenses the employees actually incurred. Werner did not represent to
the IRS that its Payment Plan approximated the expenses individual drivers actually
incurred. Rather, Werner’s Payment Plan provided a prospective estimate of expenses
that Werner expected drivers were reasonably likely to incur. Because Werner made a
prospective representation to the IRS, it cannot be said that its position now—that there
Plaintiffs allude to several representations made by Werner that the Payments represented
expenses employees were reasonably likely to incur. See, e.g., Defendants’ Response to Requests for
Admission, ECF 322-2, Page ID 21698; Tisinger Dep., ECF No. 322-5, Page ID 21756. However, each of
these representations is identical to the representations made to the IRS and merely a restatement of
Werner’s argument before the IRS. Moreover, with respect to the Request for Admissions, Werner
specifically denied Plaintiffs’ request to admit that the Payments represented expenses actually incurred,
and stated that the non-taxable portion merely approximated the expenses that Werner expected an
employee to incur. ECF No. 322-2, Page ID 21698.
is insufficient proof that the Payments approximated incurred expenses—is clearly
inconsistent with its prior position.
It is also apparent that the quantum of proof Werner provided to the IRS falls far
short of the proof required in this case. Werner’s estimate to the IRS consisted of some
research and an interview of three of its drivers and one of its fleet managers. Tax
Memo., ECF No. 317-32, Page ID 21187. The Court is not aware of the quantum of
proof required to establish an accountable plan before the IRS; however, the unsworn
estimates of three employees and a manager fall far short of proving that the Payments
reasonably reflect the expenses incurred by a class of 52,000 Plaintiff-drivers under the
Werner’s rough estimate of prospective expenses submitted to the IRS does not
establish retrospective actual expenses incurred for purposes of § 778.217(a). As a
result, judicial estoppel does not apply to Werner’s representations in this case, and
Werner’s previous statements do not prove that the Payments were reasonable
approximations of expenses actually incurred.
C. The Payments Are Part of Plaintiffs’ Regular Rate
The Court has reviewed the voluminous evidentiary record and concludes that
the Payments must be included under the regular rate for purposes of Plaintiffs’ FLSA
claims. The undisputed evidence demonstrates that the Payments play the part of a
wage. Therefore, the Payments are remuneration for work performed and are for the
benefit of the employees under 29 U.S.C. § 207(e). Also, the evidence falls far short of
establishing that the Payments approximated the actual expenses incurred by each
individual employee. Accordingly, Plaintiffs have not shown that Werner failed to pay a
minimum wage under the FLSA.
II. State Law Claims
Similar to the FLSA, the Nebraska Wage & Hour Act ( “ N W H A ” ) , Neb. Rev.
Stat. § 48-1203 (Reissue 2010), requires that each employee entitled to its benefits
receive “wages” which are at least at the statutory minimum wage level (the NWHA
does not use the term “regular rate”). Under the law, “[w]ages shall mean all
remuneration for personal services, including commissions and bonuses and the cash
value of all remunerations in any medium other than cash.” Neb. Rev. Stat. § 481202(5). Thus, an individual who does not receive as compensation for services
rendered at least the minimum wage is harmed under the statute.
Plaintiffs also assert a claim under the Nebraska Wage Payment and Collection
Act (“NWPCA”), Neb. Rev. Stat. § 48–1231(1) (Reissue 2010). The NWPCA provides a
cause of action for employees to recover unpaid wages. Id. “Wages” under the NWPCA
are defined as “compensation for labor or services rendered by an employee . . . when
previously agreed to and conditions stipulated have been met.” Neb.Rev.Stat. § 48–
1229(6). In other words, the NWCPA permits an employee to recover wages an
employer previously agreed to pay. See Eikmeier v. City of Omaha, 783 N.W.2d 795,
798 (Neb. 2010). In this case, Plaintiffs argue that Werner previously agreed to pay all
class members consistent with the NWHA. Werner disputes this assertion. However,
regardless of whether Werner expressly agreed to pay Plaintiffs in compliance with the
NWHA, Plaintiffs’ success on their NWCPA claim is contingent upon their success on
their claim under the NWHA.
For the reasons Plaintiffs’ FLSA claims must be dismissed, Plaintiffs’ state law
claims also must be dismissed. First, this Court has found “sufficient evidence from the
language, purpose, and legislative history of the Nebraska statute to conclude that the
NWHA was intended to have substantially the same coverage as the FLSA.” Petrone v.
Werner Enterprises, Inc., No. 8:12CV307, 2013 WL 3479280, at *4 (D. Neb. July 10,
2013). Thus, to the extent Plaintiffs attempt to premise their success under the NWHA
on their claims under the FLSA, their claims must be dismissed for the reasons
discussed above. Although the language defining wages under the FLSA and NWHA
are slightly different, nothing in the Nebraska statute suggests that the Payments at
issue would be classified as wages under the FLSA definition but not under the NWHA
State court precedent also suggests that Nebraska courts would hold that the
Payments were more in the form of wages than actual reimbursements. In Logan v.
Rocky Mountain Rental, 524 N.W.2d 816, 819 (Neb. Ct. App. 1994), the Nebraska
Court of Appeals addressed whether a non-taxable per diem payment of $44 per day
paid to a truck driver should be counted as a wage for purposes of computing his
worker’s compensation benefits.15 The Nebraska Court of Appeals noted that “for tax
purposes, trucking companies are allowed to pay a per diem of [$44] per day to the
The definition of wages under Nebraska’s workers compensation laws is nearly identical to the
definition of wages under the NWHA. Nebraska workers compensation law states: “[w]herever in the
Nebraska Workers' Compensation Act the term wages is used, it shall be construed to mean the money
rate at which the service rendered is recompensed under the contract of hiring in force at the time of the
accident.” Neb. Rev. Stat. Ann. § 48-126 (Reissue 2010). The definition of wages under the NWHA
similarly states, “[w]ages shall mean all remuneration for personal services, including commissions and
bonuses and the cash value of all remunerations in any medium other than cash.” Neb. Rev. Stat. § 481202(5). For purposes of the Court’s analysis, the Nebraska Court of Appeal’s interpretation of workers
compensation law is persuasive in interpreting wages under the NWHA.
driver, upon which the company does not pay FICA or taxes and which the driver does
not report as income.” Id. at 818–19. However, the court concluded that the payment
was a wage to the truck driver because he did not have to provide receipts or otherwise
prove he actually incurred $44 per day to receive the payment. Id. at 820. The Nebraska
Court of Appeals concluded “the evidence does not show a dollar-for-dollar
reimbursement for meals and lodging or anything close to it. It simply shows an
accounting entry to take advantage of an apparent tax benefit available to trucking
companies and their drivers.” Id. As a result, the Nebraska Court of Appeals concluded
the $44 daily per diem was not a genuine “reimbursement” and instead represented
actual financial gain to the driver. Id.
Based on the similar facts in this case, the Court concludes that the Payments to
participating drivers were “wages” under the NWHA and not reimbursements. Because
Plaintiffs’ claims under the NWPCA are based on their claims under the NWHA, to the
extent such claims are legally permissible, they must likewise be dismissed. Also,
Plaintiffs’ remaining claims, for unjust enrichment and breach of implied contract,
likewise fail because Plaintiffs have not shown that Werner failed to pay Plaintiffs a
minimum wage under either the FLSA or the NWHA.
For the reasons stated above, the undisputed evidence shows that the Payments
at the center of this case act as wages rather than as true reimbursements. Further, the
evidence does not demonstrate that the Payments reimbursed the Plaintiffs for
expenses they actually incurred. Accordingly, Plaintiffs’ claims under the FLSA and
state law fail as a matter of law and must be dismissed.
IT IS ORDERED:
The Motion for Summary Judgment, ECF No. 316, filed by Defendants
Werner Enterprises, Inc., and Drivers Management, LLC, is granted;
Plaintiffs’ Motion for Summary Judgment, ECF No. 321, is denied;
This matter is dismissed, with prejudice;
All other pending motions are denied as moot; and
A separate judgment will be entered.
Dated this 23rd day of March, 2017.
BY THE COURT:
s/Laurie Smith Camp
Chief United States District Judge
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