In Major Move, USDOL Makes It Easier For Employers To Claim The Commission Exemption Of 29 USC 207(i)—Outstanding!

Fox Rothschild LLP

Fox Rothschild LLP

I have handled many cases involving the so-called commission exemption under the Fair Labor Standards Act, Section 207(i), and I can safely say that often a big stumbling block for the defendant (i.e. employer) is to show that it is in a “retail” industry. Absent that showing, the exemption will not apply, even if the worker earns at least 50% of his weekly compensation from commission and his hourly earnings are at least time and one-half of the minimum wage. The US Department of Labor has just made it easier for employers to claim that exemption by expanding the number of employers that can qualify as “retail” businesses.

The DOL has deleted from the 207(i) regulations the partial listing of industries that had been, heretofore, classified as not having any “retail concept,” which would preclude businesses in those industries from claiming the exemption for workers. The new rule simultaneously deleted a second partial listing of businesses that are recognized as “retail.” Thus, going forward Sections 29 CFR 779.317 and 29 CFR 779.320 are “history.”

The agency states that it seeks to promote “consistent treatment” in ascertaining whether the exemption applies by applying “the same analysis to all establishments.” Importantly, now, businesses that were on the excluded list can now meet the exemption if they satisfy the criteria in the regulations which sets forth the standards as to what is/is not “retail.” The agency also seeks to “reduce confusion” in determining the retail nature of a particular business. In this regard, Cheryl Stanton, the Administrator of the USDOL Wage-Hour Division, stated that the new rule “unshackles job creators in the retail space who had previously been categorically excluded from the exemption without notice and comment.”

The list of non-retail businesses issued in 1961 and then was amended in 1970 to add more than forty more types of non-retail entities, e.g. dry cleaners, travel agencies. In the last fifty years, as noted by one commentator, Paul DeCamp, employers who pay workers by commission “have struggled with figuring out whether they’re covered by the Section 7(i) exemption.” Now, that these illustrative lists have been eliminated, a business can better review its circumstances and determine if it fits within the criteria established in 29 CFR 779 to ascertain if it is (or may be) a “retail business.”

The Takeaway

There is no doubt that this is a development that favors employers, or, put differently, makes it easier for employers to be able to comply with the law. The lists were restrictive and, automatically, foreclosed an employer whose business was on the non-retail list from paying its employees by commission and not legally paying overtime. It is also a sign the USDOL is being more flexible and molding its rules to fit the contours of a modern workplace.

Out with the old, in with the new…

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DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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