New DOL Guidance Expands Eligibility for the Commissioned Employee Overtime Exemption

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Under the Fair Labor Standards Act, retail or service establishment employees can be exempt from overtime pay requirements if they are paid more than one and a half times the minimum wage and more than half of their compensation is comprised of commissions on goods or services (“commissioned employee” exemption).1  Retail or service establishments are those in which 75% of the establishment’s sales is recognized by the industry as retail and that “have a retail concept.2  Earlier this year, the U.S. Department of Labor withdrew its interpretive regulation listing 134 industries it had determined long ago to lack a “retail concept” and thus to be ineligible for the exemption. 

Employers wondering how the withdrawal of the list will impact the exemption can look to the DOL’s first guidance on the topic, an opinion letter published August 31, 2020.  The opinion letter paved the way for a waste removal contractor’s truck drivers to be properly considered overtime exempt even though the waste removal industry was included on the now-withdrawn list of industries lacking a retail concept.  The truck drivers transport oilfield waste and are paid 27% of gross revenue received for each truck driven, no matter how many hours they work per week. 

The DOL observed that numerous courts had criticized the list of industries lacking a retail concept for being an arbitrary, “essentially mindless catalog.”  The DOL re-focused the inquiry on other DOL regulations3 listing the following indicia of a retail concept:

  • Sells goods or services to the general public.
  • Serves the everyday needs of the community in which it is located.
  • Disposes in small quantities its products or skills.
  • Does not take part in the manufacturing process.

In the opinion letter, the DOL expansively interpreted the first factor so that, even though the employer did not provide services to the general public, it could still be exempt if the services provided were similar to those provided to the public.  The waste removal contractor’s business was to transport fluid waste from customer oilfield locations to disposal facilities.  The DOL noted that “rural homeowners routinely hire professionals to pump liquid waste from septic tanks and transport the waste to disposal facilities.”  Since the waste removal contractor ostensibly provided similar services to its commercial customers, it could still be considered to sell services to the general public.  This is consistent with an August 28, 2018, opinion letter (FLSA2013-21) stating that business-to-business sales can qualify as retail under section 7(i).  In that letter, the DOL found that the section 7(i) exemption was available to a business selling a technology platform to retailers.

Employers with exclusively commercial customers and clients may be able to analogously claim the exemption if similar services are provided to non-commercial consumers by other companies in the same industry, citing this guidance in support.  In general, the DOL’s opinion letter, including its statement that the overtime exemptions will be construed “fairly” not “narrowly” in accordance with recent U.S. Supreme Court precedent,4 may signal the agency’s relaxation of the standards for overtime exemptions, a welcome development for employers.  Employers should keep in mind opinion letters are not binding on the courts.

 

Footnotes

1 29 U.S.C. § 207(i). 

2 29 CFR § 779.316 (emphasis added).

3 29 C.F.R. § 779.318.

4 Encino Motorcars, LLC v. Navarro, 138. S.Ct. 1134, 1142 (2018) (rejecting principle that exemptions to the FLSA should be construed narrowly rather than fairly).

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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