A “Fair (Rather than Narrow) Interpretation” of Exemptions Under the FLSA

In late August, the U.S. Department of Labor’s Wage and Hour Division (WHD) issued several opinion letters to the public. Opinion letters by the WHD are official written opinions, requested by an individual or entity, that explain how a particular law(s) applies to the requester’s fact-specific circumstances. Although each opinion letter is very fact specific, opinion letters issued by the WHD provide guidance as to how the WHD may address similar issues that may affect other employers in the future. One opinion letter that caught the attention of our firm is one that illustrates the WHD’s embrace of the U.S. Supreme Court’s recently held opinion that exemptions under the FLSA deserve a “fair (rather than narrow) interpretation.” Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134, 1142 (2018).

In the opinion letter at issue, the WHD addressed a question of whether the Fair Labor Standards Act (FLSA)’s “retail or service establishment” exemption applied to the company’s sales representatives. The FLSA exempts from its overtime pay requirements certain employees of “retail or service establishments.” 29 U.S.C. § 207(i). In order to qualify as a “retail or service establishment,” the employer must (1) “engage in the making of sales of goods or services;” (2) have “75% of its sales of goods or services, or of both, be recognized as retail in the particular industry;” and (3) “not over 25% of its sales of goods or services, or of both, may be sales for resale.” Here, the entity requesting the opinion sells a technology platform to merchants that enables online and retail merchants to accept credit card payments from their mobile devices, on-line or in person. The company employs sales representatives to promote its platform to merchant-customers. The technology cannot be resold as each platform is specifically designed for a client, and the sale of the platform constitutes 100% of the company’s sales.

Throughout its analysis of the FLSA’s exemption to these facts, the WHD utilized the Supreme Court’s recent holding that exemptions under the FLSA deserve a “fair (rather than narrow) interpretation.” This is a significant departure from the Obama-era WHD’s view that exemptions must be given a very narrow reading. As a result, the WHD opined that this company satisfied the three requirements to constitute a retail or service establishment and therefore is exempt from overtime requirements.

Again, this opinion letter’s determination on the FLSA exemption applies only to the individual entity requesting the opinion and to the specific facts presented. However, it provides some insight as to how the agency will interpret the FLSA’s exemptions going forward and signals that the “retail or service establishment” exemption may be available to employers, particularly certain I.T. platform providers, that had not previously considered it.

The attorneys at Clark & Gotzler will continue to review Opinion Letters, Ruling Letters, Administrator Interpretations, Filed Assistance Bulletins, as well as state and federal legal decisions to help our clients understand the potential implications they may have on employment-related practices and policies. Please contact Clark & Gotzler with any questions about this opinion letter or its potential application to your organization.