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Department of Labor Clarifies Retail and Service Establishment Exemption from Overtime (US)

The U.S. Department of Labor (DOL) has issued a new rule regarding the interpretation of Section 7(i) of the Fair Labor Standards Act, an overtime exemption applicable to employees of certain retail and service establishments who are paid in part via commissions. The statute provides that an employer shall not be deemed to have violated the overtime requirement by employing any employee of a “retail or service establishment” for a workweek in excess of forty (40) hours, if (i) the regular rate of pay of such employee is in excess of one and one-half times the minimum hourly rate (i.e., currently $10.88, which is 1.5x federal minimum wage), and (ii) more than half the employee’s compensation for a representative period of not less than one month represents commissions on goods or services. The Wage and Hour Division of the DOL defines a “retail or service establishment” as “an establishment 75 per centum of whose annual dollar volume of sales of goods or services (or both) is not for resale and is recognized as retail sales or services in the particular industry.” The DOL interprets “retail or service establishment” as requiring the establishment to have a “retail concept,” meaning it typically “sells goods or services to the general public,” “serves the everyday needs of the community,” “is at the very end of the stream of distribution,” disposes its products and skills “in small quantities,” and “does not take part in the manufacturing process.” 29 C.F.R. §§ 779.316; 779.318(a).

In 1961, the DOL issued interpretive guidance identifying a “partial list of establishments” that it viewed as having “no retail concept” and therefore unable to qualify as retail or service establishments under the Section 7(i) exemption. It updated the list in 1970, bringing the total number of industries likely lacking a retail concept to 134, including dry cleaners, tax preparers, laundries, roofing companies, travel agencies, blueprinting, stamp and coupon redemption stores, and telegraph companies. (For anyone scratching their heads at the last industry listed, see here.) At the same time, the DOL issued a partial list of establishments that “may be recognized as retail,” and thus more likely to qualify for the exemption. This list included coal yards, fur repair and storage shops, household refrigerator service and repair shops, massage parlors, piano tuning shops, taxidermists, and scalp treatment establishments.

Effective immediately – May 19, 2020 – the DOL has withdrawn both lists and, going forward, will treat all establishments subject to the same standards. The rule announcement is an acknowledgement that industries change and develop over time (visit your taxidermist lately?), so its retail-and-service-establishment characteristics may ebb and flow over time. Businesses that previously viewed themselves as ineligible for treating their well-compensated commissioned employees as Section 7(i) exempt because they appeared on the DOL’s now-withdrawn non-retail list are encouraged to review their methods of compensating employees and whether their business satisfies the industry-neutral definition of a retail or service establishment. Similarly, businesses that have utilized the exemption are encouraged to review the nature of their business and ensure they still fit the DOL’s remaining interpretive guidance. Although they may still qualify for the exemption, there no longer is a presumption they are a covered employer based solely on the nature of their business.

© Copyright 2020 Squire Patton Boggs (US) LLPNational Law Review, Volume X, Number 140

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About this Author

Laura Lawless Partner Squire Patton, trial lawyer, Discrimination Lawyer, Harassment, Employment Matters
Partner

Laura Lawless is a trial lawyer who represents employers before federal and state courts and administrative agencies, as well as in arbitration and mediation proceedings, defending employers in matters arising under federal and state employment laws, including claims of discrimination, harassment, retaliation, whistleblower retaliation, wrongful termination, wage and hour violations, and breach of contract, as well as in in noncompetition, nonsolicitation, nondisclosure, trade secret and unfair competition cases.

Laura also counsels and collaborates with human resources...

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