Retail or Service Exemption

Retail and Service Establishment Employees

The Law Offices of Kevin J. Dolley represents clients with claims, questions, or concerns regarding their legal rights and duties in the context of employee pay in retail and service establishments. The Fair Labor Standards Act (“FLSA”) contains a specific overtime-related provision that might apply to such employees. Our attorneys know the laws and rules that dictate whether this provision applies in your situation. Contact an attorney with our Firm today to learn more about your potential legal rights or obligations.

What is the retail or service establishment “exemption”?

Most exemptions from the FLSA’s overtime and minimum wage requirements are contained or referenced in Section 213. However, other sections of the FLSA set forth, or elaborate on, exemptions from its pay requirements. One of these other sections is Section 207(i), which provides, in relevant part:

“No employer shall be deemed to have violated [the FLSA’s overtime pay requirement] by employing any employee of a retail or service establishment for a workweek in excess of the applicable workweek specified therein, if (1) the regular rate of pay of such employee is in excess of one and one-half times the minimum hourly rate applicable to him under [the FLSA’s minimum wage rate requirement], and (2) more than half of his compensation for a representative period (not less than one month) represents commissions on goods or services.” 29 U.S.C. § 207(i).

In other words, if these two conditions apply to the employee of a "retail or service establishment," such an employee would not be entitled to overtime premium pay of one and one-half times the employee’s regular rate of pay for hours worked over 40 in a workweek.

What is a “retail or service establishment”?

For an employer to claim this overtime exemption from Section 207(i), the employer must first prove it is a “retail or service establishment.” Reich v. Delcorp, Inc., 3 F.3d 1181, 1183 (8th Cir. 1993); 29 C.F.R. § 779.411. The FLSA itself does not define “retail or service establishment” but its interpretive regulations state that the phrase means “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 C.F.R. § 779.411. But this is not the end of the story.

When is a company “recognized as retail”?

Courts have wrestled with the meaning of "recognized as retail" for decades. The United States Department of Labor ("DOL") has interpreted the phrase to require that such an establishment have a “retail concept.” 29 C.F.R. § 779.316. For many years, the FLSA’s interpretive regulations listed types and examples of companies or establishments that fell within the “retail concept” and those that did not. See 29 C.F.R. §§ 779.317, 779.320.

However, the DOL recently issued a final rule that struck these lists from the regulation and, in lieu of them, clarified that a single analytical test should be used to determine whether a given employer qualifies as a “retail or service establishment.” 85 Fed. Reg. 29867 (Apr. 24, 2020). The final rule generally indicates that this analytical test should be based upon the DOL's description of such establishments in the context of its various interpretive regulations, including but not limited to the following:

“Typically a retail or service establishment is one which sells goods or services to the general public. It serves the everyday needs of the community in which it is located. The retail or service establishment performs a function in the business organization of the Nation which is at the very end of the stream of distribution, disposing in small quantities of the products and skills of such organization and does not take part in the manufacturing process.”

29 C.F.R. § 779.318; 85 Fed. Reg. 29868 (Apr. 24, 2020). The DOL claims application of this test will promote greater uniformity among judicial decisions. Whether that is true remains to be seen.

Contact Us

If you are looking for legal advice and guidance as to the FLSA and its overtime exemption for employees of retail or service establishments, contact the Law Offices of Kevin J. Dolley by phone at (314) 645-4100 or by email at kevin@dolleylaw.com.

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