Tag Archives: Retail and Service Establishment

N.D.Tex.: Debt Settlement Company Not a “Retail or Service Establishment”

Parker v. ABC Debt Relief, Ltd. Co.

This case was before the court on the parties’ cross motions for summary judgment, regarding a variety of issues. As discussed here, one of the issues concerned the applicability of the so-called retail sales exemption, commonly referred to as 7(i), to defendant, a debt settlement company. The court held that the defendant was not a “retail or service establishment” within the meaning of 7(i), and held that the plaintiffs were not retail or service exempt as a matter of law.

Rejecting the defendant’s argument that the plaintiffs were subject to the retail exemption, because they engaged in telephone sales of a specific retail product to the general public, the court explained:

To determine whether an employer is a “retail or service establishment,” courts look to the former statutory definition in Section 13(a)(2) of the FLSA, 29 U.S.C. § 213(a)(2), which defines a “retail or service establishment” as one in which 75% of the annual dollar volume of sales of goods or services is “not for resale” and “is recognized as retail sales or services in the particular industry.” See 29 C.F.R. 779.319; Geig, 407 F.3d at 1047.

“Determination of whether a business fits the retail concept is not without difficulty.” Brennan, 477 F.2d at 296. In making their determinations, courts consistently rely on the expertise of the Department of Labor, which has promulgated an extensive series of regulations and interpretive rules that accompany the statute. See 29 C.F.R. § 779.300 et seq. Although courts are not bound by interpretative bulletins, they do provide guidance because they reflect the position of those most experienced with the application of the Act. Brennan, 477 F.2d at 296–97. Courts must consider all circumstances relevant to the business at issue. 29 C.F.R. 779.318(b).

After quoting the relevant section of the CFR, the court reasoned:

The Department of Labor’s regulations consistently emphasize that the exemption is meant to apply to “traditional” local retail establishments. 29 C.F.R. §§ 779.314, 779.315, 779.317. To assist the public, the regulations identify certain establishments as traditional local retail or service establishments—e.g., restaurants, hotels, barber shops, and repair shops. The regulations also seek to assist the public by identifying establishments that do not fall within the exception—e.g., insurance companies that sell insurance and electric companies that sell power. 29 C.F.R. §§ 779.316, 779.317. The Fifth Circuit has noted this ” ‘demonstrates that not everything the consumer purchases can be a retail sale of goods or services’ and ‘industry usage is not controlling.’ ” Brennan, 477 F.2d at 295 (citation omitted).

The regulations elaborate further on the definition by stating that “an establishment, wherever located, will not be considered a retail or service establishment within the meaning of the Act, if it is not ordinarily available to the general consuming public.” 29 C.F.R. § 779.319. “An establishment does not have to be actually frequented by the general public in the sense that the public must actually visit it and make purchases of goods or services on the premises in order to be considered as available and open to the general public. A refrigerator repair service shop, for example, is available and open to the general public even if it receives all its orders on the telephone and performs all of its repair services on the premises of its customers.” Id.

In this case, Defendants operated a debt settlement business from the eighth and tenth floors of an office building in Dallas, Texas. There were three main aspects to this debt settlement operation—sales, customer service, and negotiation with creditors. The Salespeople recruited the clients. They were constantly making telephone calls (around 300 calls a day)—to prospective customers all over the country—trying to sell a service. This is not the type of service that is utilized by the general public in the course of their daily living. Defendants were not “serv[ing] [an] everyday need [ ] of the community.” Defendants did not operate from a store front. They did not serve the general public by providing a retail product or service in the traditional sense. Defendants’ debt negotiation and settlement business was similar to other establishments that lack a “retail concept”—such as banks, brokers, credit companies, and loan offices. 29 C.F.R. § 779.317.

For these reasons, the Court finds that Defendants did not establish their burden of proving they operate a retail or service establishment within the meaning of the FLSA. The Court hereby DENIES Defendants’ motion for summary judgment on the retail or service establishment exemption and finds as a matter of law the salespeople Plaintiffs are not exempt from overtime pay under the retail or service exemption.

Click Parker v. ABC Debt Relief, Ltd. Co. to read the entire Memorandum Opinion and Order.

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N.D.Ala.: GM’s Salary Based on Forecast Sales of Store Did Not Qualify As a “Bona Fide Commission Plan;” Retail Exemption Inapplicable

Kuntsmann v. Aaron Rents, Inc.

This case was before the court on the defendant’s motion for summary judgment. The defendant asserted that plaintiff was exempt under either the executive exemption, administrative exemption or the so-called combination exemption of the two. As discussed here, the defendant further argued that even if the plaintiff was not properly deemed exempt under any of the 3 exemptions, he was paid in accordance with 207(i), the “retail exemption” and thus not entitled to overtime compensation. After holding that issues of fact regarding the plaintiff’s primary duties precluded summary judgment, the court addressed the defendant’s final contention regarding the retail exemption and held that it was inapplicable because the plaintiff had not been paid “commissions” as required for application of the retail exemption.

Describing the compensation plan at issue, the court explained:

During his time as GM of that store, Kuntsmann was the highest ranking and only employee in the store whom Aaron classified as exempt from the FLSA’s minimum wage and overtime requirements. Aaron’s compensation scheme for GMs is based on the revenue and operating profits of each individual store. The GM of each store receives a monthly income that approximates the expected financial performance of the store in a month. This approximation, called the “draw,” is compared with the actual earnings of the store on a monthly basis. Then, Aaron adjusts salary upwards when the store performance exceeds the draw and sometimes downward when the store performance does not meet the draw. GMs are also eligible for monthly bonuses based on set financial goals. Aaron reviews each store’s performance twice a year and can increase or decrease the draw according to performance. Aaron also looks at the financial performance of the store at the end of each quarter and provides the GM a bonus if his total monthly commission is greater than the GM’s quarterly draw.

After disposing of the plaintiff’s argument that the retail exemption argument was waived by the defendant’s failure to assert it in its answer (the court reasoned that it wasn’t really an exemption despite referring to it as same, but rather an “exception”), and discussing the elements necessary for the retail exemption, the court explained that it was not applicable, because the plaintiff had not been paid under a “bona fide commission plan.” After noting a lack of authority on the issue, the court distinguished two prior cases from within the Eleventh Circuit.

First, the court noted that time did not play any role in the compensation system at bar, which the court reasoned supported its finding that the plaintiff had not been paid a commission as defendant claimed:

The compensation scheme examined in Klinedinst is distinguishable from the one at issue in the present case. The Eleventh Circuit emphasized the importance of time as a factor in the Klinedinst compensation scheme; time does not play a role in the compensation of an Aaron’s GM. In addition, inherent differences appear between how the auto mechanics in Klinedinst and the GMs at Aaron earn their compensation. The auto mechanics’ compensation derived from each individual job that they performed that was assigned a particular number of “flag hours.” The connection between individual sales and the compensation of an Aaron GM is much more attenuated, however. At Aaron, GMs are neither paid on a “per job basis,” nor an hourly basis but a monthly compensation based on previous quarters’ revenue that could possibly be increased or decreased based on the store’s profits. The payment system in Klinedinst is different enough from the Aaron compensation scheme so that the opinion does not guide this court’s analysis as to whether Aaron’s payment scheme meets the final requirements of § 207(i) at the summary judgment stage—whether its compensation scheme qualifies as a bona fide commission plan.

The court also reasoned that plaintiff’s salary at issue was not a “commission,” because he was not being paid based on total sales attributed to him, but rather based on his store’s overall profits and whether they exceeded the company’s expectations:

A great difference exists between simply adding up total sales attributed to a salesperson each month and then giving the salesperson a certain percentage of those sales in compensation, and awarding a store manager a “bonus” if his store’s profits exceeded the company’s predictions. As Kuntsmann argued, his monthly salary was based on a published rate and did not change based solely on his sales or the store’s sales alone. The payment system in Ethan Allen diverges enough from the Aaron compensation scheme so that the opinion does not direct this court’s analysis as to whether Aaron’s scheme qualifies as a bona fide commission plan under § 207(i).

Thus, the court concluded:

Therefore, this court finds that Aaron has not demonstrated that its compensation scheme qualifies as a “bona fide commission plan.” 29 U.S.C. § 207(i). Although some circuits have doubted the validity of the “clear and affirmative evidence” standard, the Eleventh Circuit has not retreated from this standard, and Aaron has not met it regarding the applicability of the § 207(i) exception. Moreover, regardless of how exacting Aaron’s burden should be when proving the applicability of an FLSA exception, the Eleventh Circuit has also instructed this court to construe FLSA exceptions “narrowly and sensibly.” Klinedinst, 260 F.3d at 1254. After narrowly construing § 207(i), the court has serious doubts as to whether Aaron’ compensation scheme qualifies under the statutory section. While recognizing that determining whether a compensation system qualifies as a bona fide commission plan is a question of law for the court, Aaron has not met its burden of proof at this stage.

Click Kuntsmann v. Aaron Rents, Inc. to read the entire Memorandum Opinion.

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Recent Exemption Cases of Interest

The last few weeks have brought their share of interesting misclassification/exemption cases. In one case, a law school graduate performing non-lawyer duties was held to be non-exempt. In another, a court within the Fifth Circuit held that a tax lien negotiation business- clearly within the CFR’s definitions of a business lacking a retail concept- was in fact a retail business subject to 7(i)’s so-called retail sales exemption. Lastly, despite his managerial duties at times, a court held that a police sergeant might not be exempt under the executive exemption and denied the police department-employer’s motion for summary judgment. Each of these decisions is discussed in greater detail below.

Law School Graduate Employed as a Graphic Consultant Non-Exempt

Kadden v. VisuaLex, LLC

In the first case, the defendant- a litigation support company- employed plaintiff- a college and law school graduate as a graphics consultant. At issue was whether the defendant had properly deemed plaintiff to be exempt from the FLSA’s overtime requirements. The defendant (“VisuaLex”) contended that the plaintiff was exempt under either the creative professional exemption, the administrative exemption, or the so-called combination exemption whereby an employer can utilize elements of multiple white-collar exemptions to render an employee exempt. While acknowledging that the case presented a close call, the court held that the plaintiff lacked the requisite primary duties to meet the elements of any of the exemptions asserted. Thus, the court held that the plaintiff had been misclassified and should have been paid proper overtime. In so doing, the court reiterated that the fundamental tenet of exemption cases is an examination of the employees primary duties and not simply a job description or a list of duties performed. The court also reminded us that the learned professional examination is only applicable where the advanced degree of learning or science is actually required for and by the position performed by the employee- holding such a degree alone is not sufficient to meet the stringent exemption requirements.

Click Kadden v. VisuaLex, LLC to read the entire Opinion and Order.

Tax Consultants Subject to 7(i) Retail Exemption Notwithstanding CFR Regs Defining “Tax Services” Establishments as “Lacking a Retail Concept”

Wells v. TaxMasters, Inc.

The second case was before the court on the parties’ competing motions for summary judgment. Deciding the case in favor of the defendants, the court held that the plaintiffs were subject to the so-called retail exemption codified in 7(i) of the FLSA. It was uncontested that the plaintiffs regularly worked in excess of 40 hours. Similarly, the duties they performed were not at issue nor was the methodology by which they were paid (qualifying for the pay element of the retail sales exemption). Rather the sole issue appears to have been whether or not defendants- an enterprise engaged in rendering “tax resolution services”- was in a retail establishment within the meaning of 7(i) such that plaintiffs could properly be deemed to be exempt from overtime under the so-called retail exemption.

Holding that the defendants were a retail establishment, notwithstanding the Department of Labor’s regulations stating otherwise, the court reasoned:

Whether Defendants were exempt under Section 207(i) thus turns on whether they were “an establishment 75 percentum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and is recognized as retail sales or services in the particular industry.” 29 U.S.C. § 213(a)(2). According to Department of Labor regulations, a retail or service establishment must have a “retail concept.” 29 C.F.R. § 779.316 (2005). Section 318 of the regulations describes the “characteristics and examples” of retail or service establishments:

Typically a retail or service establishment is one which sells goods or services to the general public. It serves the everyday needs of the community in which it is located. The retail or service establishment performs a function in the business organization of the Nation which is at the very end of the stream of distribution, disposing in small quantities of the products and skills of such organization and does not take part in the manufacturing process.

Such an establishment sells to the general public its food and drink. It sells to such public its clothing and its furniture, its automobiles, its radios and refrigerators, its coal and its lumber, and other goods, and performs incidental services on such goods when necessary. It provides the general public its repair services and other services for the comfort and convenience of such public in the course of its daily living. 29 C.F.R. § 779.318. Section 317 of the regulations provide a “partial list of establishments lacking ‘retail concept’ ” which includes, among over one hundred other examples, “tax services.” 29 C.F.R. § 779.317.

Plaintiffs do not dispute that Defendants sold more than 75 per cent of their products directly to the consumer. Instead, Plaintiffs insist that the Department of Labor regulations, which expressly define “tax services” companies as lacking a retail component, are determinative. See Doc. 60, 61, 63. Defendants contend both that they were not a “tax services” establishment and that Section 779.317 therefore does not apply and that Fifth Circuit precedent holds that the Department of Labor’s list of non-retail establishments is not determinative. Doc. 64.

The Defendants are correct that the Fifth Circuit has declined to follow strictly the Department of Labor’s list. See Rachal v. Allen, 376 F.2d 999 (5th Cir.1967) (rejecting Secretary of Labor’s position that a fixed base aeronautics operator’s business has no retail concept merely because it is part of an industry, namely, the air transportation industry, that Section 779.317 lists as lacking a retail concept). “There is no magic in placing a business in a category and then asserting that since it is in that category, it is like all businesses with which it has been placed.” Id. at 1003. In Rachal, the Fifth Circuit rejected the Secretary of Labor’s argument that because a fixed-base operator engaged in servicing and selling aircraft at airports was in the air transportation industry, and because the Secretary had made a determination in Section 779.317 that the air transportation industry lacked a retail concept, a fixed base operator necessarily lacked a retail concept:

[T]he Secretary’s argument … assumes the result of the issue we are asked to determine…. The issue is whether, under the statute, there may be, as a matter of law, and if so whether there is as a matter of fact, a retail concept in the defendants’ business, notwithstanding the Secretary’s determination. It is, of course, the function of the Court, as well as of the Secretary, to interpret the statute. Id. (citing Walling v. La Belle S.S. Co., 148 F.2d 198 (6th Cir.1945)). The question for this Court, then, is whether Defendants provided services that meet the Secretary’s four criteria for establishments with a retail concept. 29 C.F.R. § 770.319 (listing criteria).

Certainly Defendants sold their services to the general public. In fact, the Plaintiffs in this action worked as salespeople in a call center and sold Defendants’ services directly to consumers. Plaintiffs contend, however, that Defendants’ “services do not serve the every day needs of the public” because “these services provide a specialized function that is not necessary for the community’s daily routine.” Doc. 68 at 22. It is not the case that an establishment must provide a product or service used by each member of the community on daily basis for it to serve the everyday needs of the community. Addressing just such an argument, the District Court for the Middle District of Florida reasoned that:

[t]he list provided in the regulations of businesses which are recognized as retail reflects that such narrow interpretation would be incorrect. This list includes billiard parlors, bowling alleys, cemeteries, coal yards, crematories, dance halls, embalming establishments, funeral homes, fur repair and storage shops, hotels, masseur establishments, recreational camps, taxidermists, theatres, and undertakers, none of which would be used daily by everyone in the community. Reich v. Cruises Only, Inc., 1997 WL 1507504, *4 (M.D.Fla.1997).

This Court agrees. The summary judgment evidence before the Court indicates that Defendants provided not only tax preparation services that each member of the community may well utilize, but also tax dispute services to address issues that may, in some instances, arise in the course of filing taxes. Doc. 64–1 at 7–8. Each member of “the community” does not require tax services on a daily basis any more than they require frequent visits to the undertaker. Yet these services derive inevitably from the only two certainties in life. Such certain, but periodic, services are no less retail in nature than the sale of “automobiles, … radios and refrigerators,” or the “incidental services on such goods when necessary.” 29 C.F.R. § 779.318. Defendants’ tax resolution services clearly were “services for the comfort and convenience of such public in the course of its daily living.” Id.

It is not clear if the case would have been decided differently outside the Fifth Circuit. Of interest, in footnote 5 of its opinion, the court declined to follow a Sixth Circuit opinion on point that reached the opposite conclusion, Hodgson v. N.G. Kallas Co., 480 F.2d 994 (6th Cir.1973).

Click Wells v. TaxMasters, Inc. to read the entire Opinion and Order.

Notwithstanding Management Duties, Police Lieutenant Might be Non-Exempt; Defendant’s Motion for Summary Judgment re: Executive Exemption Denied

Jones v. Williams

In the third exemption case of interest, the case was before the court on the defendant’s motion for summary judgment regarding all of plaintiff’s asserted claims (Title VII, retaliation, unpaid overtime, etc.). As discussed here, the court denied the defendant’s motion with regard to plaintiff’s unpaid overtime claim, citing issues of fact precluding a finding- as a matter of law- that plaintiff was subject to the executive exemption.

The court’s brief description of the plaintiff’s duties was as follows:

Steven Jones currently works as a police supervisor with the rank of lieutenant at BCCC. (Defs.’ Mot. Summ. J., ECF No. 44, at 2, Ex. 1; Deposition of Steven Jones, ECF No. 51, at 7–8.) Jones’s duties include making shift assignments, reviewing paperwork, responding to calls in the event he is needed, and “mak[ing] sure everybody is on their post, looking clean and doing their jobs.”

After noting that the defendant’s cited an outdated regulation as the basis for their exemption defense, the court ultimately held that the defendant failed to show that the plaintiff’s primary duties were the performance of exempt work:

Here, the defendants’ exemption claim fails summary judgment on two fronts. First, the defendants have failed to adduce any evidence that Jones has any responsibility with respect to hiring or firing or that his opinions are given “particular weight” with regard to these matters. See
29 C.F.R. § 541.105. Without such evidence, the defendants cannot sustain an exemption claim under § 541.100.

Second, taking the available facts regarding his job responsibilities in the light most favorable to Jones, the defendants have not convincingly demonstrated that, even though he supervises other officers, Jones’s primary duty is not law enforcement. See 29 C.F.R. § 541.3(b). As evidence that Jones primarily performs exempt work, the defendants point to Jones’s statement that his duties include “making shift assignments … review[ing] all paperwork and … respond[ing] to calls in the event an officer has an issue or my sergeant is unable to deal with an issue … mak[ing] sure everybody is on their post, looking clean and doing their jobs.” (Jones Dep. at 9.) However, in interpreting a similar job description (“a lieutenant’s ‘primary responsibility … is to make sure that their people in the field can handle any situation that happens at any time’ “), the Tenth Circuit noted that this description could merely encompass “the kind of front-line supervision” that the regulations deem “non-managerial.” Maestas, 664 F.3d at 830. Elsewhere in the record, Jones has indicated that his duties also include being “on-call” (Jones Dep. at 59), maintaining emergency generators when needed, ensuring campus safety, and setting up traffic barrels. Jones was, apparently, essential to front line security during the snow storms that caused him to work substantial overtime. Jones may perform enough non-exempt duties like these to fall outside the scope of the exemption. The defendants have certainly not demonstrated his job position falls squarely within an exemption. Accordingly, the defendants’ motion for summary judge with respect to Jones’s FLSA claim will be denied.

Click Jones v. Williams to read the entire Memorandum opinion.

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N.D.Cal.: Life Insurance Broker Not a “Retail or Service Establishment;” 7(i) Retail Sales Exemption Inapplicable

Burden v. SelectQuote Ins. Services

This case was before the court on the defendant’s motion for summary judgment.  As discussed here, Defendant, a life insurance agency, argued that plaintiffs, its life insurance brokers, were exempt from the FLSA’s overtime provisions pursuant to the so-called retail sales exemption.  While the court held that defendant could make out 2 of the 3 elements required for application of the exemption, ultimately it held that the exemption was inapplicable because defendant lacked a retail concept.

Pursuant to Section 7(i), certain employees are exempt from the FLSA’s overtime provisions if three conditions must be met: (1) the employee must be employed by a retail or service establishment; (2) the employee’s regular rate of pay must exceed one and one-half times the applicable minimum wage for every hour worked in a workweek in which overtime hours are worked; and (3) more than half the employee’s total earnings in a representative period must consist of commissions.  Here, the court held that the defendant could not satisfy element (1) and therefore the exemption did not apply.

Analyzing the issue, the court reasoned:

“Section 779.317 expressly identifies “insurance” as being among the “list of establishments to which the retail concept does not apply.” 29 C.F.R. § 779.317 (identifying: “Brokers, custom house; freight brokers; insurance brokers, stock or commodity brokers” and “Insurance; mutual, stock and fraternal benefit, including insurance brokers, agents, and claims adjustment offices.”) (emphasis added). SelectQuote acknowledges that “[i]nsurance” and “insurance brokers” are expressly identified in § 779.317, but nonetheless asserts that § 779.317 is inapposite because it is operating a “new type of business” that is “not covered by the Insurance Industry exclusion from the ‘retail concept’ in the FLSA regulations.” Mot. at 18.

As support for its position, SelectQuote relies principally on two out-of-circuit cases, which ostensibly concluded that a business lacking a retail concept under § 779.317 may nonetheless qualify for the retail or service exemption. Mot. at 18–19. In Hodgson v. Centralized Servs., Inc., 457 F.2d 824 (4th Cir.1972), the court held that an income tax preparation service qualified as a retail or service establishment under the FLSA, notwithstanding a prior DOL interpretation stating that “accounting firms” lacked the retail concept. Id., 457 F.2d at 827. In reaching its decision, the court noted that the DOL’S pre–1949 exclusion of “accounting firms” should not “arbitrarily embrace the unsophisticated business activities of the defendants in an area of service which came into being and had developed throughout the country only during the past decade.” Id.

In Selz v. Investools, Inc., No. 2:09–CV–1042 TS, 2011 WL 285801 (D.Utah Jan.27, 2011), the court ruled that a company that marketed products and services to educate individuals on how to personally invest in exchange markets online and aid them in doing so did not qualify as one of the specific establishments exempt from the retail exception. While noting that that § 779.317 specifies that educational institutions, finance companies and investment counseling firms lack a retail concept, the employer, “as a marketer of materials that teach and aid individuals to do their own financial investing, does not fit into the traditional concept of an educational institution, such as a for-profit university; a finance company, such as a bank; or an investment counseling firm.” Id. at *6 (emphasis added). The court concluded that “marketing tools to aid individuals in independently investing personal funds is its own industry” and therefore § 779.317 was not a bar to the FLSA exemption afforded under 29 U.S.C. § 317(i). Id .

SelectQuote claims that like the businesses in Hodgson and Selz, it too has developed a business model that is not encompassed in § 779.317. According to SelectQuote, its direct marketing approach “turned the life insurance industry on its head” by having its agents contact prospective customers by telephone instead of in person-more like the independent broker model traditionally existing in the property and casualty insurance business. Mot. at 2. In SelectQuote’s words, “One of the old adages in the insurance industry before 1985 was that property and casualty insurance was bought and life insurance was sold. SelectQuote’s insight was to change that paradigm so that life insurance too could just be bought by the average consumer.” Id.

SelectQuote’s self-aggrandizing arguments for avoiding the preclusive effect of § 779.317 are unavailing. In both Hodgson and Selz, the type of businesses operated by the defendants did not previously exist. In Hodgson, the court noted that the defendant’s tax preparation service had then only come into existence within a relatively recent period of time. 457 F.2d at 827. Likewise, in Selz, the court focused on the fact that the defendant’s business of selling do-it-yourself investment materials did not fall under the rubric of a bank, finance company or educational institution. 2011 WL 285801, at *6. In contrast, SelectQuote’s business bears none of the hallmarks of a new type of business establishment. Although SelectQuote has changed the method by which an agent sells life insurance—namely, directly by telephone instead of face-to-face—the fact remains that SelectQuote is still selling life insurance.

Moreover, SelectQuote’s own statements purporting to explain why its business supposedly is so revolutionary underscores the logical flaws in its argument. Section 779.317 identifies “Insurance” and “insurance brokers”—not “life insurance” or “term life insurance”—as establishments lacking a retail concept. See 29 C.F.R. § 779.317. Ironically, what SelectQuote claims to be “new” is not new at all; rather, as SelectQuote itself acknowledges, it simply is employing direct marketing methods that have long been used in the property and casualty insurance business. Singh Decl. ¶ 5. In other words, SelectQuote has made life insurance sales more like the traditional insurance brokerages, which clearly are within the scope of § 779.317. In Hodgson and Selz, the defendants changed a specifically-listed industry so fundamentally as to distinguish it from an industry listed in section 779.317. See Selz, 2011 WL 285801, at *6; Hodgson, 457 F.2d at 827. The logic of those cases does not apply in cases such as the present, where a company simply has changed its business to be more like a business which indisputably falls within the scope of § 779.317. For these reasons, the Court finds that SelectQuote falls within the insurance brokerage industry that section 779.317 finds to lack the requisite retail concept to qualify for an exemption from the FLSA’s overtime requirements.

As an alternative matter, SelectQuote argues that the Court should decline to apply § 779.317 on the ground that it lacks a rational basis for concluding that insurance establishments are not exempt as a retail or service establishment. Mot. at 20–22. According to SelectQuote, “[s]ection 779.317 is an ‘antiquated interpretation’ that does not take into account the fundamental changes over the past four decades regarding what is considered a ‘retail or service establishment,’ and it should not preclude SelectQuote from applying the section 7(i) exemption to Burden.” Id. at 22.

To support its position, SelectQuote points to cases where courts have declined to defer to the DOL’s list of non-retail establishments set forth in § 779.317 where there is no discernable rational basis for the DOL’s determination that type of business lacks a retail concept. See Martin v. The Refrigeration Sch., Inc. ., 968 F.2d 3 (9th Cir.1992) (holding that there was no rational basis for § 779.317‘s distinction that “[s]chools (except schools for mentally or physically handicapped or gifted children)” lack a retail concept); Reich v. Cruises Only, Inc., 1997 WL 1507504, at *5 (M.D.Fla. June 5, 1997) (finding that there was no rational basis for the DOL’s inclusion of “[t]ravel agencies” as establishments lacking a retail concept). However, these cases are distinguishable in that they did not involve the insurance industry. Moreover, the Supreme Court has held that the inclusion of financial companies, including insurance establishments, in § 779.317 is proper. See Mitchell, 359 U.S. at 290–91.

In light of the above, the Court finds that § 779.317 is a persuasive embodiment of the Department of Labor’s “body of experience and informed judgment.” See Skidmore, 323 U.S. at 140. The Court further finds that SelectQuote has not shown “plainly and unmistakably” that Burden’s exemption was within the “terms and spirit” of the FLSA. See Arnold, 361 U.S. at 392. As an insurance broker, SelectQuote is not a “retail or service establishment” and thus is not exempt from the FLSA’s overtime requirements. See 29 U.S.C. § 207(a); 29 C.F.R. § 779.317. Therefore, SelectQuote is not entitled to summary judgment of Burden’s second cause of action. See Fed.R.Civ.P. 56(a).”

Click Burden v. SelectQuote Ins. Servicesto read the entire Order Granting in Part and Denying in Part Defendant’s Motion for Summary Judgment.  For further information on the the 7(i) exemption generally, see DOL Fact Sheet #20: Employees Paid Commissions By Retail Establishments Who Are Exempt Under Section 7(i) From Overtime Under The FLSA.

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3d Cir.: Flat-rate Payment Scheme Constituted Commissions; Nutrisystem Sales Associates 7(i) Exempt

Parker v. Nutrisystem, Inc.

This case was before the Third Circuit on Plaintiffs appeal of summary judgment in favor of Defendant.  Plaintiffs were sales associates, employed in Defendant’s call center, who completed sales orders on behalf of Defendant.  It was undisputed that Defendant’s business was “retail” in nature.  Thus, the only issue before the court was whether the District Court correctly concluded that NutriSystem’s method of compensating its call-center employees constituted a commission under the FLSA so that Nutrisystem was exempt from paying Appellants overtime.  The court concluded that the compensation constituted a commission and affirmed the ruling below.

Describing the pay methodology at issue, the Court said:

“In March 2005, NutriSystem implemented the compensation scheme for sales associates at issue in this case. Under the plan, sales associates receive the greater of either their hourly pay or their flat-rate payments per sale for each pay period. The hourly rate is $10 per hour for the first forty hours per week, and $15 per hour for overtime. The flat rates per sale are $18 for each 28-day program sold via an incoming call during daytime hours, $25 for each 28-day program sold on an incoming call during evening or weekend hours, and $40 for each 28-day program sold on an outbound call or during the overnight shift. These flat rates do not vary based on the cost of the meal plan to the consumer.

The majority of the sales associates are compensated based on these flat rates, not their hourly earnings. Under the compensation plan, sales associates do not receive overtime compensation when they are paid the flat rates for the sales made. There is no change to the flat rates when a sales associate works more than forty hours in one week.”

In affirming the decision that this pay constituted commissions under the FLSA, for the purposes of the 7(i) exemption, the Court reviewed  the legislative history of the applicable regulations, the limited case law and the DOL’s opinions and reference materials.

Dissenting, Judge Cowen took issue with the majority’s holding that commissions were proportional to the sales prices of the good sold here.  First, Judge Cowen noted:

“Unlike the majority, I would afford Skidmore deference to the Department’s view that in order to constitute a commission for purposes of § 7(I), the amount of compensation paid to the employee must be proportionally related to the amount charged to the customer. Because NutriSystem failed to demonstrate the requisite proportionality, its compensation plan cannot be considered a bona fide commission plan under § 7(I).”

Applying this definition to commissions, Judge Cowen reasoned that here, because the flat rates were not proportional to the products sold, the flat rates did not constitute commissions:

“The majority then concludes that NutriSystem’s compensation plan meets this definition because the payments made to its sales associates are “sufficiently proportional” to the cost to the consumer. Id . While I do not object to the majority’s contention that § 7(I) requires a proportional relationship between employee compensation and customer costs, I cannot agree that NutriSystem has demonstrated such a proportional relationship here.

It is undisputed that NutriSystem’s meal plans vary in price depending on the type of meal plan the customer chooses and the length of the customer’s commitment. It is likewise undisputed that the flat-rate fee paid to a sales associate does not vary depending on the type of plan the customer chooses or the length of the customer’s commitment. NutriSystem clearly has not demonstrated that the flat-rate fees are proportionally related to the cost to the customer. While neither the plaintiffs nor the Department suggests that a commission must be based on a strict percentage of the end cost to the consumer, the flat-rate payments in this case do not correspond at all with the end cost to the consumer. Rather, the flat-rate payments are based on the time the sale is made and whether it results from an incoming or outgoing call. The fact that NutriSystem can perform math to portray its flat-rate fees as percentages of customer costs does not transform the fees into commissions.

Therefore I am unable to agree with the majority and would reverse and remand for further proceedings.”

To read the entire decision and dissent click here.

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Filed under Commissions, Exemptions

S.D.Fla.: Business-to-Business Merchants’ Motion For Summary Judgment On “Retail” Exemption Denied; Defendants Failed To Plead The Exemption As An Affirmative Defense And Lack A Retail Concept, Because They Only Provide Services To Other Merchants

Ebersole v. American Bancard, LLC

Defendants moved for summary judgment asserting that they are exempt from the FLSA as a “retail and service establishment,” as well as because Plaintiff has not presented sufficient facts to demonstrate that they were aware of Plaintiff’s alleged uncompensated overtime work.

The Court recited the following fact, as pertinent to its inquiry as to whether Defendants were a “retail and service establishment”:

“American Capital Advance, LLC (“ACA”) is a Florida limited liability company located in Boca Raton, Florida. ACA provides the services to merchants of business cash advances, also referred to as accounts receivable financing or accounts receivable factoring, to qualified businesses. American Bancard, LLC (“AB”) is a Florida limited liability company located in Boca Raton, Florida, and is ACA’s parent company.  As a merchant services provider, AB’s primary focus is to make available to merchants the service of credit and debit/check card processing services and processing equipment.”

The Court then held that Defendants are not a “retail and service establishment”:

“Defendants argue that they are exempt from the overtime provisions of the FLSA because they are a retail and service establishment under § 207(i) of the FLSA. Defendant bears the burden of establishing that they are entitled to the exemption. Alvarez Perez v. Sanford-Orlando Kennel Club, Inc., 515 F.3d 1150, 1156 (11th Cir.2008). No statutory definition of “retail or service establishment” currently exists.

When Congress passed Section 207(i) in 1961, it specifically stated that the phrase “retail or service establishment” was to be given the same meaning as the phrase in Section 213(a)(2). The definition of this phrase in Section 213(a)(2), however, was repealed in 1990. Nevertheless, courts have found that this definition is still applicable to Section 207(i) since no Congressional intent has been shown to modify the definition. See, e.g.,
29 C.F.R. §§ 779.301, 779.312; Reich v. Delcorp, Inc., 3 F.3d 1181, 1183 (8th Cir.1993); Reich v. Cruises Only, Inc., No. 95-cv-660, 1997 WL 1507504, at *2 (M.D. Fla. June 5, 1997). Section 213(a)(2) defined a retail or service establishment as: (1) an establishment 75 per centum of whose annual dollar volume of sales of goods or services (or of both) is not for resale and (2) is recognized as retail sales or services in the particular industry. 29 U.S.C. § 213(a)(2) (repealed 1990).

Defendants claim to fall within the retail and services exception “since they meet the basic requirements of subsections (1) and (2) [above] and are recognized in the credit industry as a service provider. ACA provides the service to merchants of business cash advances … As a merchant services provider, AB’s primary focus is to make available to merchants the service of credit and debit/check card processing services and processing equipment.” DE 19 at 5-6.

Federal regulations clarify that this exemption applies only to a “traditional local retail or service establishment.” 29 C.F.R. § 779.315. Such establishments must be part of industries that have a “retail concept.” Id. § 779.316. One provision explains:

Typically a retail or service establishment is one which sells goods or services to the general public. It serves the everyday needs of the community in which it is located. The retail or service establishment performs a function in the business organization of the Nation which is at the very end of the stream ofdistribution, disposing in small quantities of the products and skills of such organization and does not take part in the manufacturing process.  Id. § 779.318. Defendants sell machines and services to merchants. Defendants’ industry does not have a “retail concept,” and Defendants do not claim they sell goods or services to the general public.

The Eleventh Circuit has pointed out that the Supreme Court requires “that courts closely circumscribe the FLSA’s exceptions.” Nicholson v. World Bus. Network, Inc., 105 F.3d 1361, 1364 (11th Cir.1997). And the exemption “is to be applied only to those clearly and unmistakably within the terms and spirit of the exemption.” Brock v. Norman’s Country Market, Inc., 835 F.2d 823, 826 (11th Cir.1988) (quotation marks and cite omitted); Nicholson v. World Business Network, Inc., 105 F.3d 1361, 1364 (11th Cir.1997). Therefore, narrowly construing the claimed exemption to the FLSA overtime requirement, this Court finds that Defendants have not demonstrated, as a matter of law, that they are retail or service establishments exempt from the FLSA’s overtime pay provisions. Morgan v. Family Dollar Stores, Inc., 551 F.3d 1233, 1269 (11th Cir.2008).”

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Filed under Affirmative Defenses, Exemptions