A Department of Labor No Brainer – Removing Arbitrary Restrictions Concerning the “retail concept.”

“I don't know where I'm going, but I'm on my way.”

--  Carl Sandburg

On May 19, 2020, the Department of Labor (“DOL”) published a new rule repealing some of their old guidance relating to the outside sales exemption of the Fair Labor Standards Act (“FLSA”). The guidance was originally published under part 29 C.F.R. Part 779 as interpretive guidance to clarify which businesses may or may not have a “retail concept.” After criticism from the community and some courts, the DOL has since seen fit to remove these non-exhaustive lists.

The FLSA requires employers, among other things, to pay their employees a federal minimum wage and overtime for hours worked over forty in a given week. However, the FLSA also provides exemptions in 29 U.S.C. 207(a) such as the administrative or professional exemption. The final rule discussed here speaks to the outside sales exemption. An employee may be classified as exempt under the outside sales exemption if; (1) its primary duty is making sales commonly or regularly away from the employer’s business, (2) the employee is employed by a retail or service establishment, (3) the regular rate of pay of the employee exceeds one and one-half times the minimum wage, and (4) more than half the employee’s compensation represents commissions on goods and services. See 29 C.F.R. § 541.500, 29 C.F.R. §779.313, 29 U.S.C. §207(i). This final rule clarifies the obtuse exemption requirement that an employee must be employed by a retail or service establishment.

Along with the requirements listed above, the employee must be working for a business that has a “retail concept” which means that it sells goods and services to the public, serves the everyday needs of the community, is the end of the distribution chain, sells in smaller quantities, and does not take part in manufacturing. 29 CFR 779.318(a). Before the new rule, these requirements were further limited by a list on non-exhaustive types of establishments that, according to the DOL, lacked a retail concept. 29 CFR §779.317. In addition, there was a non-exhaustive list that the DOL said may be recognized as retail. 29 CFR §779.320. These lists caused considerable confusion because it was hard to discern the principle  underlying placement on the lists.

The new rule introduced by the DOL repeals these non-exhaustive lists in favor of the general if somewhat magical guidance already provided to determine if a business has a retail concept. The DOL wrote that this rule allows the Department to apply one analysis for every business rather than treating those on the list differently. It also allows them to account for changes in the industry practices. Furthermore, they are responding to critics that say the non-exhaustive lists had no rational basis for a business’s inclusion or exclusion.

This is a huge deal for some businesses who would like the flexibility of classifying their employees as exempt. In the final rule, the DOL wrote some explanations for the withdrawal of section 779.317, 320. Chief among them is that the list of businesses lacking a retail concept as enumerated in former section 779.317 meant that those businesses could not overcome the assumption that it lacked a retail concept; conversely, the inclusive list in section 779.320 were only suggestions and the businesses still had to satisfy the other requirements in section 779.318. The Seventh Circuit had apply described these lists as “incomplete, arbitrary, and essentially mindless catalog.” Alvarado v. Corp. Cleaning Servs., Inc., 782 F.3d 365, 369-71 (7th Cir. 2015). So, by removing these two lists the DOL is doing two things; (1) allowing the dozens of businesses in the list of businesses lacking a retail concept to qualify for the exemption based on the merits rather than an arbitrary judgment by the Department of Labor, and (2) making sure that each business is evaluated in the same manner thereby making the process much more fair. This rule is a no brainer.

For those with a background in the Administrative Procedure Act, the lack of notice and comment periods may be a bit of a head scratcher. The DOL has thought of this as well and included its justification for skipping this period. Since part 779 is an interpretive rule, the notice and comment requirements generally do not apply. 5 U.S.C. 553(b). Part 779 was promulgated as an interpretive rule, amended as an interpretive rule, and can be repealed without notice and comment as an interpretive rule.

This rule is became effective immediately on May 19, 2020. For more information on the final rule, please visit the Federal Register at https://www.federalregister.gov/documents/2020/05/19/2020-10250/partial-lists-of-establishments-that-lack-or-may-have-a-retail-concept-under-the-fair-labor.

Also, keep in mind that the FLSA exemptions are complicated and readers should not read the requirements stated in this blog as the only requirements necessary to take advantage of section 207(a) exemptions. If you are a business who was previously excluded as a business under section 779.317, you may want to look at section 779.318 and contact an attorney to see if you now qualify to use the exemption. If you previously qualified and were listed in section 779.320 then you should have nothing to worry about because the DOL stated that nothing “should be construed to suggest that any particular type of establishment previously listed by the Department is, or is not, a retail establishment.” 85 Fed. Reg. 29867. Finally, before making any changes to your employment payment practices, it is probably a good idea to consult a lawyer to make sure that you are making the right decision. Backpay and overtime remedies often come with liquidated damages and a hasty decision could be pricey.

For more information about FLSA exempt employees please visit the Abrahams Wolf-Rodda blog (www.awrcounsel.com) where we discuss some of the other positions that may be exempt from minimum wage and overtime requirements.