The Department of Labor (“DOL”) issued a final rule yesterday providing more flexibility to retail and service industry employers. The Fair Labor Standards Act (“FLSA”) generally requires employers to pay nonexempt employees overtime compensation for time worked in excess of 40 hours per workweek. Section 7(i) of the FLSA was enacted to relieve employers in retail and service industries from obligations of paying overtime compensation to certain employees paid primarily on the basis of commission. To fall within this exemption, the regular rate of pay for such an employee must be in excess of one and half times the FLSA’s minimum wage and more than half of the employee’s compensation for a representative period must represent commissions on goods and services. Additionally, the employee must be employed by a retail or service establishment.  

The final rule withdraws the DOL’s list of industries having “no retail concept” and industries which “may be recognized as retail.”  The non-retail list included industries such as dry cleaners, tax preparers, laundries, roofing companies, travel agencies, blue printing and photostating establishments, stamp and coupon redemption stores, and telegraph companies. The DOL’s withdrawal allows establishments previously included in its lists to assert that they have a retail concept to qualify for the exemption.

Under the DOL’s interpretative analysis, a retail or service establishment is one that sells goods or services to the general public serving the everyday needs of the community in which it is located. Some examples of establishments which are viewed as having a retail concept by the DOL include grocery stores, hardware stores, clothing stores, coal dealers, furniture stores, restaurants, hotels, watch repair establishments, and barber shops. This list is not exhaustive.

The DOL issued this final rule without notice and comment. The final rule takes effect immediately. Notice and comment were not required because the lists being withdrawn were interpretive regulations originally issued in 1961 without notice and comment or a delay.

Because this final rule takes effect immediately, establishments which were previously included in the DOL’s lists should evaluate whether they now fall within the retail or service establishment exemption. If you have any questions about the retail or service establishment exemption, please feel free to contact Kemp Smith’s Labor Department at 915-533-4424.