Wage and Hour Division Issues Final Rule Regarding Retail or Service Establishments

On May 18, 2020, the U.S. Department of Labor’s Wage and Hour Division (WHD) announced a final rule to provide one analysis for all employers when determining whether they qualify as “retail or service” establishments for purposes of an exemption from overtime pay applicable to commission-based employees.

The Fair Labor Standards Act (FLSA) provides an exemption from the FLSA’s overtime pay requirement for certain employees of retail or service establishments that are paid primarily on a commission basis. Today’s rule withdraws two provisions from WHD’s regulations.

  • The first withdrawn provision included industries that had a “retail concept,” an establishment that typically “sells goods or services to the general public,” “serves the everyday needs of the community,” “is at the very end of the stream of distribution,” disposes its products and skills “in small quantities,” and “does not take part in the manufacturing process.” The list found at 779.316 was detailed and static and did not allow for changes in the industry or a specific business.
  • The second withdrawn provision listed industries that, in WHD’s view, “may be recognized as retail” and thus were potentially eligible for the exemption. As the rule explains, some courts have questioned whether these lists lack any rational basis.

As a result of the withdrawal of these two provisions, establishments in industries that had been on the non-retail list may now assert that they have a retail concept and might qualify to use the exemption. Alternately, some establishments on the withdrawn non-retail lists might have added flexibility regarding commission-based pay arrangements with their workers. For these employers and workers, they could consider whether more commission-based pay is sensible.

The rule is final and is effective immediately. Employers Council will send updates as additional guidance is available. Now is a good time for retail and service employers to take a look at their businesses to determine if they might now be eligible for the exemption from overtime, or whether they are no longer eligible.