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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.
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.
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.
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.
N.D.Ga.: Apartment Broker, Whose Customers Were The Apartment Homes And Not Renters, Not A “Retail Establishment” Subject To 7(i) Exemption Of The FLSA
Russell v. Promove, LLC
This case was before the Court on all parties’ motions for summary judgment. Plaintiffs had cross-moved for summary judgment, seeking a finding from the Court that Defendant, an apartment broker, was not a “retail” establishment, subject to the 7(i) exemption of the FLSA as a matter of law. Granting this branch of Plaintiffs’ Motion, the Court stated, in part:
“A retail or service establishment is defined as “an establishment 75 per centum 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) (1988); 29 C.F.R § 779.312. First, Plaintiffs argue that the Defendants’ business is not regarded as retail and that such a concept cannot be artificially created in an industry that lacks a traditional concept of retail and servicing.; Schussler v. Employment Consultants, 333 F.Supp. 1387, 1390 (N.D.Ill.1971). Plaintiffs argued that the “mom and pop” type shops which conduct similar business to the Defendants do not comprise an apartment locator industry. In response, Defendants assert that when Defendant Todd White founded the predecessor of ProMove in 1990, he relied on industry standards to determine employee payment and commission structure.
The record before the Court sufficiently establishes the nature of ProMove’s business to allow the Court to reach a conclusion regarding the claimed exemption. Though the parties disagree as to the conclusions to be drawn from the evidence, the underlying facts are largely undisputed. Prospective renters come into ProMove’s business locations and receive referrals to apartment homes. These renters pay nothing for the referral. ProMove’s compensation, if any, comes from the apartment homes if the prospective renter chooses the apartment, identifies ProMove as the referral source, and pays the first month’s rent. Based on the undisputed facts, the Court concludes that the apartment homes are ProMove’s customers. The payment for ProMove’s service comes entirely from the apartment homes. The fact that the payment is not made until the first month’s rent is paid does not alter the fact that the payment is from the apartment home. ProMove’s business serves the apartment homes as its customers, not the general public.
Also, the Court finds that ProMove’s business is closely akin to a broker. Even though ProMove does not have the authority to negotiate terms of the lease agreements, it serves the function of bringing the landlords and tenants together much as a real estate agent would do in a real estate transaction. Such businesses have been identified by the DOL as lacking the retail concept. 29 C.F.R. § 779.317. Also, its brokering function occurs prior to the “very end of the stream of distribution,” and thus, does not meet the examples of retail and service establishments provided by the DOL. 29 C.F.R. § 779.318.
Based on the foregoing, the Court concludes that Defendants failed to prove the applicability of the Section 7(i) retail or service establishment exemption. Accordingly, Plaintiffs’ motion for summary judgment as to Defendants’ retail or service exemption defense is GRANTED.”
D.Kan.: Mortgage Broker Not “Retail Establishment”; Financial Specialists Not “Retail” Exempt
Underwood v. NMC Mortg. Corp.
This case was before the Court on Defendant’s Motion for Summary Judgment. Defendant, a mortgage broker, moved for summary judgment asserting that it was a “retail establishment” and that, therefore, Plaintiffs, who were “financial specialists” facilitating their loans, were exempt for the overtime provisions of the FLSA, under the so-called retail exemption. The Court found that Defendant is not a retail establishment, and therefore Plaintiffs are not retail exempt.
“Plaintiffs assert that the facts are analogous to the facts in Saunders v. Ace Mortgage Funding, Inc, in which that court distinguished Gatto and found that the retail or service establishment exemption did not apply. In Saunders, plaintiffs brought a collective action under the FLSA seeking overtime and minimum wage compensation from their employer. The employer, Ace Mortgage (”Ace”), matched mortgage borrowers with lenders for a fee. Ace primarily brokered loans, but it also engaged in a small amount of direct lending called “table funding” where the bank provided the funding for the loan but the loan closed in Ace’s name. Ace also closed a small number of loans in its own name using its warehouse line of credit.
In Saunders, the District of Minnesota examined whether Ace was part of the “financial industry” because the businesses listed in 29 C.F.R. § 779.317 that lacked a retail concept included “credit companies,” “small loan and personal loan companies,” and “finance companies.”
29 C.F.R. § 779.317 specifically cites to Mitchell for the proposition that these type of financial businesses lack a retail concept. The Saunders court found that the facts in Gatto were factually distinguishable because Ace engaged in a small amount of direct lending and declined to use the reasoning in Gatto. It concluded that Ace was part of the financial industry and therefore could not qualify as a retail or service establishment as a matter of law and that the Gatto court ultimately “strained to bring a financial business within the definition of a retail or service establishment on the basis that its activities were limited to brokering, not lending.”
The facts in this case are similar to the facts in both Gatto and Saunders. NMC matched customers with lenders in finding residential loans but did not represent the consumer or the lender. Unlike the defendant in Gatto but similar to the defendant in Saunders, NMC engaged in table funding in which the loan closed in NMC’s name. Although NMC did not use its own line of credit for closing loans like the defendant in Saunders, the Court finds the facts more analogous to the facts in Saunders.
Everything about NMC’s business is related to the financial industry. NMC matched consumers with loans. NMC processed the loan applications. NMC engaged in table-funding so the loan closed in the name of NMC. In contrast to Illinois law where mortgage brokers are defined as “nonfinancial intermediaries,” in Kansas, NMC’s name appeared on the closing loan documents as a “lender” because NMC engaged in table-funding. In its annual report to Kansas, NMC had to report that it was a “lender” from 2004 through 2006 on 422 loans totaling $57,653,391. Finally, NMC underwrote these table-funded loans which indicates more than peripheral involvement in the financial aspects of providing the loan to the consumer. Accordingly, this Court concludes that NMC is within the financial industry and therefore should not be considered a “retail or service establishment.”
Even if this Court were to conclude that NMC was not within the financial field, NMC still lacks the characteristics that would qualify it as a “retail or service establishment.” As the Department of Labor’s regulations make clear, the three characteristics of a retail or service establishment include (1) selling to the general public; (2) serving the everyday needs of the public; and (3) being at the very end of the stream of distribution. Examples of such establishments include grocery stores, furniture stores, and restaurants. NMC is not similar to these retail establishments as it does not appear to the Court that matching individuals with residential mortgage lenders would qualify as selling to the “general public” or serving the “everyday needs” of the public. In any event, NMC is not at the very end of the stream of distribution. In Partida v. American Student Loan Corporation, the District of Arizona addressed this third element when determining whether a company in the business of matching individuals with third-party lenders to consolidate student loans was a retail or service establishment. The court stated that the defendant’s business was “an integral and upstream part of the loan origination business and therefore is on the non-retail end of the establishment spectrum.” As the Partida court noted, “[a] loan referral provides the basis for a subsequent transaction in which an individual obtains what he or she ultimately seeks-a [residential] loan.” The court in Partida concluded that because the business was not at the end of the stream of distribution, the business could not be considered a “retail or service establishment.”
NMC’s business was similar to the business in Partida in that it matched individuals with residential loans. NMC was not providing the end product but was directing the individual to the residential loan. The Tenth Circuit has noted that “[b]usinesses that serve only other commercial establishments are generally not within the ‘retail concept’ of the exemption.” This Court cannot conclude that NMC was at the very end of the stream of distribution. As such, it lacks the characteristics of a retail or service establishment.
Finally, this Court finds 29 C.F.R. § 779.317 instructive. This regulation provides a list of establishments that lack a retail concept and includes freight brokers, insurance brokers, and stock or commodity brokers. Although “mortgage brokers” were not included, the regulation specifically states that it is a “partial list” of businesses. A “mortgage broker” is similar to an “insurance broker” or “stock or commodity broker” because the broker assists the customer in obtaining the mortgage, insurance, or stock. The majority, if not all, of Defendant’s business was done as a “broker.” Because a mortgage broker is similar to the brokers listed in section 779.317, the Court finds that NMC lacks the “retail concept” to be qualified as a “retail or service establishment.” Exemptions are to be narrowly construed under the FLSA, and NMC is not a retail or service establishment under 29 U.S.C. § 207(i) and therefore is not entitled to this exemption.”