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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.

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).”