By: Gena Usenheimer, Victoria Vitarelli, and Noah Finkel

Seyfarth Synopsis:  By eliminating two interpretive regulations, the U.S. Department of Labor expanded the number of employers that may qualify as a “retail or service establishment” under Section 7(i)’s exemption of the Fair Labor Standards Act.  This potential expansion of coverage of Section 7(i) opens the door for more employers to classify employees as exempt.

Section 7(i) of the FLSA provides an overtime exemption to certain employees who are paid mostly on a commission basis, so long as specific conditions are met, including the employee must be one of a “retail or service establishment.”

Determining what is a “retail or service establishment” would seem straightforward. But the DOL’s regulations on the subject—all written amid a 1960s economy—consist of 35 regulations that take up more than 15 pages of single-spaced text in the Code of Federal Regulations and often leave employers, lawyers, and judges scratching their heads on how to apply them today.

Among those interpretations are those that require “a retail or service establishment” to have a “retail concept.” The DOL sought to provide guidance as to which establishments may or may not be recognized as having a “retail concept” by proffering two partial lists of establishments that purportedly served to clarify which establishments may, or may not, have a “retail concept” under Section 7(i) of the FLSA.

In 29 C.F.R. § 779.317, the DOL provided a partial list of establishments in which the DOL presumed to have “no retail concept,” which, among dozens of entities, included establishments that serve the everyday needs of the public such as banks, barber shops and beauty salons, dentists offices, insurance brokers, investment counseling firms, loan offices, tax services, and travel agencies. In contrast, 29 C.F.R. § 779.320 provided a partial list of establishments that “may be recognized as retail,” which included department stores, hotels, restaurants and sporting goods stores, to name a few.

Effective May 19, 2020, the DOL issued a final rule withdrawing these two interpretive regulations. The DOL posited that the removal of these lists promotes consistent treatment when evaluating Section 7(i) exemption claims and reduces confusion.  In its own words, the DOL “will apply one analysis—the same analysis—to all establishments, thus promoting consistent treatment for purposes of the section 7(i) exemption.” The DOL also noted that elimination of these regulations provide for a streamlined analysis that may be flexible with the developments in industries over time, and eliminates criticism and inconsistent application by the courts.

Without the lists’ restraints, establishments previously on the “no retail concept” list may assert that they have a retail concept to seek the Section 7(i) exemption.

The removal of these regulations — which are effective immediately because they are interpretations rather than notice-and-comment regulations — acknowledges that the concept of retail and service establishments has evolved from the 1960s when the lists were first introduced, and provides an avenue for the 2020 concept of retail and service establishments to apply the exemption.

Next up? Let’s hope the DOL can provide some modern clarity on its 33 other interpretations of “retail or service establishment.”