Wage And Hour Division Modifies Rules For FLSA's Retail Sales Exemption

• Published date: 29 May 2020
• Author: Mr Allan Bloom, Rachel S. Philion and Dominique Kilmartin
• Subject Matter: Employment and HR, Employee Benefits & Compensation, Employee Rights/ Labour Relations
• Law Firm: Proskauer Rose LLP

On May 19, 2020, the United States Department of Labor's Wage and Hour Division (WHD) implemented a final rule withdrawing partial lists of establishments that it previously interpreted as either having "no retail concept" or possibly having a retail concept for purposes of the Fair Labor Standards Act's (FLSA) Section 7(i) overtime exemption for commissioned retail sales employees. Effective today, the rule allows all employers to apply a uniform analysis in determining whether they qualify as a "retail or service" establishment, without any predetermined industry restrictions.

FLSA's Section 7(i) Exemption

Generally, the FLSA requires covered employers to pay employees overtime compensation for time worked in excess of 40 hours in a given workweek, unless the employees qualify for one or more of the exemptions set forth in Sections 7 or 13 of the statute. Section 7(i) exempts a "retail or service" establishment from the FLSA's overtime requirements for certain commission-based employees. An employee of a "retail or service" establishment is eligible for the exemption so long as: (i) the employee's regular rate of pay averages more than one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked; and (ii) more than half the employee's total earnings in a representative period comes from commissions.

The DOL's interpretative regulations (found at 29 CFR Part 779) set forth certain criteria required for employers to qualify as a "retail or service establishment," including that the employer have a "retail concept" (29 CFR 779.316). According to the DOL, an employer with a "retail concept" will typically sell goods and/or services to the general public, serve the day-to-day needs of the community, is at the very end of the stream of distribution, disposes in small quantities their products/skills, and does not take part in the manufacturing process (29 CFR 779.318).

In 1961, WHD implemented interpretive regulations setting forth two categorical lists - one containing industries that it viewed as "lacking" a "retail concept" (29 CFR 779.317), and thus prohibited from claiming the Section 7(i) exemption; and another including industries that "may be recognized" as having a "retail concept" (29 CFR 779.320), and thus could potentially claim the Section 7(i) exemption. The lists had not been amended since the early 1970s, and with few exceptions, the regulations provided no explanation for why...