Labor & Employment Law Daily DOL withdraws ‘retail’ establishment partial lists, making overtime exemption for commission-based workers potentially easie
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Wednesday, May 20, 2020

DOL withdraws ‘retail’ establishment partial lists, making overtime exemption for commission-based workers potentially easie

By Ronald Miller, J.D.

Removal of the lists will promote consistent treatment for purposes of the overtime exemption by applying the same retail concept analysis to all establishments, the DOL said.

The Department of Labor’s Wage Hour Division announced today that it will issue a final rule to provide one analysis for all employers when determining whether they qualify as “retail or service” establishments for purposes of an exemption from overtime pay applicable to commission-based employees. The final rule is to be published in the Federal Register on May 19, 2020, and withdrawal of the lists takes effect immediately.

“No retail concept” and “may be … retail” lists withdrawn. In this final rule, the Department withdraws two partial lists of establishments from provisions of WHD’s regulations, 29 C.F.R. §§ 779.317 and 779.320. The first withdrawn provision, § 779.317, listed industries that WHD viewed as having “no retail concept” and thus were categorically ineligible to claim the § 7(i) exemption. The second withdrawn provision, § 779.320, listed industries that, in WHD’s view, “may be recognized as retail” and thus were potentially eligible for the exemption. According to the Department, these changes will promote consistent treatment for purposes of the § 7(i) exemption by applying the same retail concept analysis to all establishments.

Commissioned employees. The FLSA generally requires covered employers to pay nonexempt employees overtime compensation for time worked in excess of 40 hours per workweek, under 29 U.S.C. § 207(a). Section 7(i) of the Act was enacted to relieve employers in retail and service industries from the obligation of paying overtime compensation to certain employees paid primarily on the basis of commissions.

In order for an employee to come within this exemption, “the regular rate of pay of such employee [must be] in excess of one and one-half times the [Act’s minimum wage],” and “more than half [of the employee’s] compensation for a representative period (not less than one month) [must represent] commissions on goods or services.” In addition, the employee must be employed by a retail or service establishment, which §13(a)(2) defines as “‘an establishment 75 per centum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry,’” 29 CFR 779.312.

Retail concept defined. The Department has interpreted “retail or service establishment” as requiring the establishment to have a “retail concept,” 29 CFR 779.316. Such an establishment 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,” § 779.318(a).

“Lacking retail concept.” The Department introduced part 779 in 1961 without notice-and-comment as an interpretative rule. It contained a non-exhaustive list of 89 types of establishments that were viewed as lacking a “retail concept,” 779.317. The interpretative rule also included a separate non-exhaustive list of 77 types of establishments that “may be recognized as retail,” 29 C.F.R. 779.320 Section 779.317 was amended in 1970, again without notice-and-comment, to add to the list another 45 establishments that were viewed as lacking a “retail concept.” The Department’s view was that the establishments on the list could not qualify as a retail or service establishment eligible to claim the § 7(i) exemption. The Department amended § 779.320 in 1971 to remove “valet shops” from the list.

Withdrawal of Section 779.317. In the new rule, the Wage Hour Division has withdrawn the regulatory provision found at 29 C.F.R. 779.317 that listed specific types of establishments that lacked a retail concept and were therefore ineligible to claim the § 7(i) exemption. Establishments previously on the list (which included entities like accounting firms, banks, building contractors, common carriers, heating and A/C contractors, insurance firms, labor unions, law firms, medical clinics and labs, plumbing contractors, telephone companies, travel agencies, and the like) may now assert under part 779 that they have a retail concept and may be able to qualify as retail or service establishments.

The Department says that it will now apply the interpretations set forth in § 779.318 and elsewhere in part 779 to determine whether establishments previously listed in § 779.317 have a retail concept and satisfy the additional criteria necessary to qualify as retail or service establishments.

Withdrawal of Section 779.320. Similarly, the Department withdraws the regulatory provision found at 29 CFR 779.320, which listed types of establishments that “may be recognized as retail” and therefore may have been eligible to claim the § 7(i) exemption. And again, the Department will apply its interpretations set forth in § 779.318 and elsewhere in part 779 to determine whether establishments previously listed in § 779.320 (typically recognized as retail) have a retail concept and satisfy the additional criteria necessary to qualify as retail or service establishments.

No notice and comment. Because the regulations in part 779 are interpretive rules, the Department declined to engage in notice-and-comment rulemaking when it initially promulgated the §§ 779.317 and 779.320 lists in 1961, and when it later amended the provisions. With regard to an interpretive rule, the provision in the Administrative Procedure Act (APA) requiring publication of a notice of proposed rulemaking does not apply. Accordingly, the Department declined to engage in notice-and-comment rulemaking to withdraw the lists in §§ 779.317 and 779.320 from part 779.

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