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FMG Law Blog Line

Spring Cleaning: Department Of Labor Scraps Confusing Categorizations Regarding Retail And Service Establishments

Posted on: June 4th, 2020

By: Michael Hill

As part of an ongoing effort to clarify the laws governing how employers may pay their employees, the U.S. Department of Labor (DOL) removed some outdated and confusing rules it had introduced in the 1960s and 1970s.

The law at issue is known as the “retail-sales exemption” to the Fair Labor Standards Act (FLSA). Generally, the FLSA requires employers to pay their employees time and a half for hours worked over 40 in a week. Retail and service establishments, however, may take advantage of an exemption to this rule if (1) more than half of its employee’s compensation represents commissions, and (2) the employee’s regular rate of pay is 1½ times the federal minimum wage.

But what exactly counts as a “retail or service establishment”? The DOL long has required such a business to have a “retail concept,” meaning it 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.”

While the foregoing descriptions may sound straightforward enough, the DOL in the 1960s and 1970s introduced lists of hundreds of types of businesses that, in its view, either lacked a “retail concept” or “may be recognized as retail” (but also may not be). The “not retail” list included businesses such as dry cleaners, tax preparers, laundries, roofing companies, travel agencies, blue-printing establishments, and telegraph companies; while the “may be retail” list included coal yards, fur repair and storage shops, household refrigerator service and repair shops, massage establishments, piano-tuning establishments, and taxidermists. These lists came with little to no explanation for why any establishment was categorized as it was.

These lists now are gone. Current DOL leadership has recognized that these lists, while perhaps initially intended to offer clarification, only served to confuse people. (For example, why is a dry cleaner not retail, but a coal yard “may be” retail? Does a taxidermist “serve the everyday needs of the community” more so than a laundry?)

Going forward, businesses seeking to invoke the retail-sales exemption still have to assess whether they satisfy the “retail concept,” but they no longer will have to check whether they fall on either of the former “not retail” or “may be retail” lists.

If you have questions or would like more information, please contact Michael Hill at [email protected].

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