The United States Department of Labor (DOL) continues to moderate its review of what types of businesses may be able to assert the retail sale exemption from the overtime pay requirements of the Fair Labor Standards Act (FLSA). A new DOL opinion letter recently issued specifically examines this overtime exemption for a business that was traditionally considered as lacking a retail concept: a private oilfield service company that provides waste-removal services. (Opinion Letter FLSA2020-11)
Under the FLSA, retail or service establishments qualify as those in which 75% of the establishment’s sales is recognized by the industry as retail and that have a retail concept. Retail or service establishment employees may be exempt from overtime if their regular rate of pay averages more than one and one-half times the minimum wage for every hour worked in a workweek in which overtime hours are worked and more than half of their compensation is comprised of commissions on goods or services.
The United States Supreme Court recently held that exemptions under the FLSA deserve a “fair (rather than narrow) interpretation” as the exemptions are “as much a part of the FLSA’s purpose as the overtime-pay requirement.” Encino Motorcars, LLC vs. Navarro, 138 S. Ct. 1134, 1142 (2018).
In May 2020, the DOL amended its regulations and withdrew a list of 134 establishments under the FLSA, which were previously listed among organizations that categorically could not qualify as a retail or service establishment. This included “waste removal contractors.”
Based on the nature of its business, this private oilfield service company would not traditionally qualify for the retail service exemption. Nonetheless, the company requested an opinion letter from the DOL to see whether, based on recent legal developments, it could qualify for the exemption. The truck drivers in this company are paid solely on a commission basis to transport fluid waste from customer oilfield locations to disposal facilities, and 27% of gross revenue is received for each truck driver, no matter the amount of hours worked per week.
In lieu of a rigid list of types of businesses, the DOL’s refocused regulations provide more relaxed criteria for determining the types of businesses that have the requisite “retail concept” to meet the exemption, such as whether the business:
- Sells goods or services to the general public;
- Serves the everyday needs to the community in which it is located;
- Is at the very end of the stream of distribution;
- Disposes in small quantities its products or skills;
- Does not take part in the manufacturing process.
While the private oilfield service company at issue did not seem to directly provide goods or services to the general public, the DOL noted it could be considered to have sold services to the general public when transporting fluid waste from customer oilfield locations to disposal facilities. In addition, it is possible that the company “sells to the general public” if the employer’s truck drivers transport liquid waste from the location where it is generated to disposal facilities used by the public, including residencies.
The DOL also noted that waste removal can meet the standards of “the everyday needs of the community” in addition to “the very end of the stream of distribution.” The DOL observed that the employer may or may not meet the “disposing in small qualities” criterion based on how the trucks and the quantity of waste they remove compare to those in general consumer waste-removal services. Lastly, the DOL noted the employer at issue “does not take part in the manufacturing process.”
As the company met most of the criteria, the DOL concluded that the company’s employees may be eligible for the Section 7(i) exemption, even though this business would not have traditionally qualified as a “retail or service establishment” under prior regulations.
STAYING UP TO DATE CRUCIAL UNDER CONTINUED DOL REVIEW
The takeaway from these recent changes is that businesses that were traditionally excluded from claiming such an exemption under the old DOL regulations may now be able to claim the exemption if they can show they meet most of the new “retail concept” criteria. Stay tuned for further developments.