[Federal Register Volume 85, Number 97 (Tuesday, May 19, 2020)]
[Rules and Regulations]
[Pages 29867-29870]
From the Federal Register Online via the Government Publishing Office [www.gpo.gov]
[FR Doc No: 2020-10250]
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DEPARTMENT OF LABOR
Wage and Hour Division
29 CFR Part 779
RIN 1235-AA32
Partial Lists of Establishments that Lack or May Have a ``Retail
Concept'' Under the Fair Labor Standards Act
AGENCY: Wage and Hour Division, Department of Labor.
ACTION: Final rule; withdrawal.
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SUMMARY: Section 7(i) of the Fair Labor Standards Act (FLSA or Act)
provides an exemption from the Act's overtime compensation requirement
for certain commissioned employees employed by a retail or service
establishment. In this final rule, the Department of Labor (Department)
withdraws the ``partial list of establishments'' that it previously
viewed as having ``no retail concept'' and categorically unable to
qualify as retail or service establishments eligible to claim the
section 7(i) exemption; and the ``partial list of establishments''
that, in its view, ``may be recognized as retail'' for purposes of the
exemption. Removing these lists promotes consistent treatment when
evaluating section 7(i) exemption claims by treating all establishments
equally under the same standards and permits the reevaluation of an
industry's retail nature as developments progress over time. This
withdrawal will also reduce confusion, as the list of establishments
that ``may be recognized as retail'' did not necessarily affect the
analysis as to whether any particular establishment was, in fact,
retail.
DATES: This rule is effective May 19, 2020.
FOR FURTHER INFORMATION CONTACT: Amy DeBisschop, Director, Division of
Regulations, Legislation, and Interpretation, Wage and Hour, U.S.
Department of Labor, Room S-3502, 200 Constitution Avenue NW,
Washington, DC 20210, telephone: (202) 693-0406 (this is not a toll-
free number).
SUPPLEMENTARY INFORMATION: Because part 779 is an interpretive rule,
the provision in the Administrative Procedure Act (APA) requiring
publication of a notice of proposed rulemaking does not apply. See 5
U.S.C. 553(b). Publication of this document constitutes a final action
under the APA.
This rule is intended to promote consistent treatment across all
industries and reduce confusion when determining eligibility for
claiming the section 7(i) exemption. This rule does not impose any new
requirements on employers or require any affirmative measures for
regulated entities to come into compliance.
Pursuant to the Congressional Review Act, 5 U.S.C. 801 et seq., the
Office of Information and Regulatory Affairs (OIRA) designated this
rule as not a ``major rule,'' as defined by 5 U.S.C. 804(2). OIRA has
also determined that this final rule is not a ``significant regulatory
action'' under Executive Order 12866, section 3(f), and has therefore
waived its review. Finally, this final rule is not an E.O. 13771
regulatory action because it has been determined to be not significant
under E.O. 12866.
I. Background
The FLSA generally requires covered employers to pay nonexempt
employees overtime compensation for time worked in excess of 40 hours
per workweek. See 29 U.S.C. 207(a). Section 7(i) of the Act was enacted
to relieve employers in retail and service industries from the
obligation of paying overtime compensation to certain employees paid
primarily on the basis of commissions. In order for an employee to come
within this exemption, ``the regular rate of pay of such employee [must
be] in excess of one and one-half times the [Act's minimum wage],'' and
``more than half [of the employee's] compensation for a representative
period (not less than one month) [must represent] commissions on goods
or services.'' 29 U.S.C. 207(i). In addition, the employee must be
employed by a retail or service establishment, which had been defined
in section 13(a)(2) of the Act 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 CFR 779.312 (quoting FLSA section 13(a)(2),
Fair Labor Standards Amendments of 1949, Public Law 81-393, section 11,
63 Stat. 910, 917 (1949)).\1\
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\1\ In 1989, Congress repealed section 13(a)(2)--which provided
an exception for intrastate businesses from the FLSA's minimum wage
and overtime compensation requirements--and with it, the statutory
definition of ``retail or service establishment.'' See Fair Labor
Standards Act Amendments of 1989, Public Law 101-157, section 3, 103
Stat. 938, 939 (1989)). However, because ``retail or service
establishment'' was defined in section 13(a)(2) of the Act when the
section 7(i) exemption was added to the Act in 1961 and because
``the legislative history of the 1961 amendments to the Act
[indicated] that no different meaning was intended by the term
`retail or service establishment' from that already established by
the Act's definition,'' the Department continues to use the repealed
section 13(a)(2) definition of ``retail or service establishment''
to determine whether an employer qualifies as a ``retail or service
establishment'' for purposes of the section 7(i) exemption. See 29
CFR 779.312 (citing legislative history) & Sec. 779.411; WHD
Opinion Letter FLSA2005-44, 2005 WL 3308615 (Oct. 24, 2005); WHD
Opinion Letter FLSA2003-1, 2003 WL 23374597 (Mar. 17, 2003); see
also Gieg v. DDR, Inc., 407 F.3d 1038, 1047 (9th Cir. 2005)
(agreeing that repealed section 13(a)(2)'s definition of ``retail or
service establishment'' applies to the section 7(i) exemption);
Reich v. Delcorp, Inc., 3 F.3d 1181, 1183 (8th Cir. 1993) (same).
But see Alvarado v. Corp. Cleaning Servs., Inc., 782 F.3d 365, 369-
71 (7th Cir. 2015) (rejecting the legislative history cited in the
Department's regulations and refusing to apply repealed section
13(a)(2)'s definition of ``retail or service establishment'' to the
section 7(i) exemption because that exemption has a ``very different
purpose'' than the provision in the Act for which the definition was
initially included).
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[[Page 29868]]
The Department has interpreted ``retail or service establishment''
as requiring the establishment to have a ``retail concept.'' 29 CFR
779.316. Such an establishment typically ``sells goods or services to
the general public,'' ``serves the everyday needs of the community,''
``is at the very end of the stream of distribution,'' disposes its
products and skills ``in small quantities,'' and ``does not take part
in the manufacturing process.'' Id. at Sec. 779.318(a).
In 1961, the Department introduced in part 779, without notice-and-
comment because it was an interpretive rule, a lengthy but non-
exhaustive list of 89 types of establishments that it viewed as lacking
a ``retail concept.'' See 26 FR 8333, 8355 (Sept. 2, 1961) (introducing
29 CFR 779.317). In 1970, the Department amended Sec. 779.317, again
without notice-and-comment because it was an interpretive rule, to add
to the list another 45 establishments that it viewed as lacking a
``retail concept.'' See 35 FR 5856, 5881-82 (Apr. 9, 1970). Section
779.317 was not amended further.
Section 779.317's non-retail list included establishments in
various industries such as dry cleaners, tax preparers, laundries,
roofing companies, travel agencies, blue printing and photostating
establishments, stamp and coupon redemption stores, and telegraph
companies. The Department's view was that the establishments on the
list could not qualify as retail or service establishments eligible to
claim the section 7(i) exemption. Although some of the establishments
on the list included citations to authorities,\2\ in most cases Sec.
779.317 did not provide any explanation for why a particular
establishment categorically lacked a retail concept.
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\2\ Some of the authorities cited have subsequently been called
into question. For instance, Sec. 779.317 cited Schmidt v. Peoples
Telephone Union of Maryville, Mo., 138 F.2d 13 (8th Cir. 1943) as
authority for including telephone companies on the list. More
recently, a district court noted that Schmidt and the list generally
``do not take into account changes in the size of and technologies
in the current retail economy.'' In re: DirecTech Sw., Inc., No. 08-
1984, 2009 WL 10663104, at *9 (E.D. La. Nov. 19, 2009).
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The same 1961 interpretive rule that introduced Sec. 779.317 also
included in part 779 a separate non-exhaustive list of 77 types of
establishments that ``may be recognized as retail.'' See 26 FR 8333,
8356 (Sept. 2, 1961) (introducing 29 CFR 779.320). The Department
amended Sec. 779.320 in 1971, again without notice and comment because
it was an interpretive rule, to remove ``valet shops'' from the list.
See 36 FR 14466 (Aug. 6, 1971). Section 779.320 was not amended
further.
The ``may be'' retail list included establishment in industries
such as coal yards, fur repair and storage shops, household
refrigerator service and repair shops, masseur establishments, piano
tuning establishments, reducing establishments, scalp-treatment
establishments, and taxidermists. Section 779.320 provided no
explanation why any of the listed industries were included.
II. Explanations for Withdrawal of Section 779.317
The Department hereby withdraws the regulatory provision found at
29 CFR 779.317, which lists specific types of establishments that, in
the Department's view, lacked a retail concept and were therefore
ineligible to claim the section 7(i) exemption. Establishments which
had been listed as lacking a retail concept may now assert under part
779 that they have a retail concept and may be able to qualify as
retail or service establishments. The Department will now apply its
interpretations set forth in Sec. 779.318 and elsewhere in part 779 to
determine whether establishments previously listed in Sec. 779.317
have a retail concept and satisfy the additional criteria necessary to
qualify as retail or service establishments.\3\ Accordingly, the
Department will apply one analysis--the same analysis--to all
establishments, thus promoting consistent treatment for purposes of the
section 7(i) exemption.
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\3\ See, e.g., 29 CFR 779.316, 319, 321 (further discussing
retail concept) & 779.322-336 (discussing additional criteria to
qualify as a retail or service establishment).
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Moreover, the generally applicable analysis set forth in Sec.
779.318 and elsewhere in part 779 is better suited to account for
developments in industries over time regarding whether they are retail
or not. For example, an industry may gain or lose retail
characteristics over time as the economy develops and modernizes, or
for other reasons. A static list of establishments that absolutely lack
a retail concept cannot account for such developments or modernization,
which could have caused confusion for establishments as they tried to
assess the applicability and impact of the list. The generally
applicable analysis set forth in Sec. 779.318 and elsewhere in part
779 better addresses each particular establishment's retail nature or
lack thereof and is unlikely to result in similar confusion.
Statements of courts that have questioned the reasoning behind the
list in Sec. 779.317 inform the Department's action. For instance, the
Seventh Circuit recently described the list as an ``incomplete,
arbitrary, and essentially mindless catalog.'' Alvarado, 782 F.3d at
371. The Ninth Circuit, in turn, said that ``the list does not appear
to flow from any cohesive criteria for retail and non-retail
establishments'' and declined to defer to the list with respect to
schools. Martin v. The Refrigeration Sch., Inc., 968 F.2d 3, 7 n.2 (9th
Cir. 1992); see also, e.g., Wells v. TaxMasters, Inc., No. 4:10-CV-
2373, 2012 WL 4214712, at *6 (S.D. Tex. Sept. 18, 2012) (concluding
that the listing of ``tax services'' in Sec. 779.317 was not
determinative and finding that a tax-consulting and tax-preparation
services company met part 779's criteria for a retail or service
establishment); Reich v. Cruises Only, Inc., No. 95-660-CIV-ORL-19,
1997 WL 1507504, at *4-5 (M.D. Fla. June 5, 1997) (concluding that
``excluding a travel agency from those establishments possessing a
retail concept appear[s] to be arbitrary and without any rational basis
explained in the regulations,'' especially considering that travel
agencies better fit the criteria in Sec. 779.318 than some of the
establishments listed in Sec. 779.317). But see, e.g., Brennan v.
Great Am. Discount & Credit Co., Inc., 477 F.2d 292, 296-97 (5th Cir.
1973) (finding ``the Administrator has considered all relevant issues''
in including employment agencies in Sec. 779.317's list and relying on
the regulations to rule that employment agencies lacked the necessary
retail concept to qualify as retail or service establishments); Burden
v. SelectQuote Ins. Servs., 848 F.
[[Page 29869]]
Supp.2d 1075, 1084-86 (N.D. Cal. 2012) (finding Sec. 779.317 to be
``persuasive'' and ruling that defendant fell ``within the brokerage
industry that section 779.317 finds to lack the requisite retail
concept to qualify for an exemption from the FLSA's overtime
requirements''); McKenzie v. Lindstrom Air Conditioning, Inc., No. 08-
CV-61378, 2009 WL 10667579, at *3 (S.D. Fla. Sept. 3, 2009) (noting
``the specific carveout for air-conditioning contractors from the
retail concept'' in Sec. 779.317 and deciding to ``follow the guidance
provided by this DOL interpretation'' to conclude that they do not
qualify as retail or service establishments).
III. Explanations for Withdrawal of Section 779.320
The Department further withdraws the regulatory provision found at
29 CFR 779.320, which listed types of establishments that, in the
Department's view, ``may be recognized as retail'' and therefore may
have been eligible to claim the section 7(i) exemption. Part 779
explains that ``the mere fact that an establishment is of a type noted
in Sec. 779.320 does not mean that any particular sales of such
establishment are within the retail concept.'' 29 CFR 779.321(a).
Rather, an establishment on the ``may be'' retail list was subject to
the same retail concept requirements as an establishment not on the
list. Thus, establishments on the ``may be'' retail list will still be
found to lack a retail concept if they fail to satisfy the Department's
criteria for retail concept set forth in Sec. 779.318. See, e.g.,
Brennan v. Parnham, 366 F. Supp. 1014, 1023 (W.D. Pa. 1973) (opining
that, even if defendant operated ``automobile repair garages [as
listed] in Section 779.320 . . . he has still failed to meet the second
requirement that the particular services must be recognized as retail
services''). And establishments not on the ``may be'' retail list may
still be recognized as retail if they satisfy those criteria. See,
e.g., Alvarado v. Corp. Cleaning Serv., Inc., 719 F. Supp. 2d 935, 944
n.9 (N.D. Ill. 2010) (holding that window washing business met criteria
of a retail establishment set forth at Sec. 779.318(a) even though
``[w]indow washing service providers do not appear on [the Sec.
779.320] list''). As such, Sec. 779.320 did not necessarily impact the
analysis as to whether any particular establishment was retail.
In addition, and as with Sec. 779.317's non-retail list, courts
have questioned the reasoning behind Sec. 779.320's ``may be'' retail
list. In Martin, for instance, the Ninth Circuit stated that
simultaneously listing ``dentists, doctors, and lawyer offices'' as
non-retail in Sec. 779.317 and ``barber shops,'' ``scalp-treatment
establishments,'' and other establishments as possibly retail in Sec.
779.320 was inconsistent with the Department's own criteria in Sec.
779.318 that a retail establishment should provide for ``everyday needs
of the community'' and ``the comfort and convenience of [the general]
public in the course of its daily living.'' 968 F.2d at 7 n.2 (``A
community's tonsorial services are hardly more integral to its daily
routine than its medical or dental ones.''). Similarly, the court in
Cruises Only found it was ``arbitrary and without any rational basis''
to list travel agencies as non-retail in Sec. 779.317 in part
because--in that case--they serve a community's everyday needs more
than at least some industries that may ``be recognized as retail'' in
Sec. 779.320, such as taxidermists or crematoriums. 1997 WL 1507504,
at *4-5. In short, ``there appear to be `no generating principles' or
`cohesive criteria' underlying the distinction between the businesses
that are considered retail establishments as listed in Sec. 779.320
and those which are not as listed in Sec. 779.317.'' Haskins v. VIP
Wireless LLC 300, No. 09-754, 2010 WL 3938255, at *3 (W.D. Pa. Oct. 5,
2010) (quoting Martin, 968 F.2d at 7 n.2). But see, e.g., Klinedinst v.
Swift Investments, Inc., 260 F.3d 1251, 1256 n.5 (11th Cir. 2001)
(citing Sec. 779.320 for the proposition that ``[a]utomobile repair
shops have been explicitly recognized as retail establishments'');
Gilreath v. Daniel Funeral Home, Inc., 421 F.2d 504, 508 (8th Cir.
1970) (noting that plaintiffs conceded that a funeral home was a retail
or service establishment because, in part, the Department had
recognized it as one in Sec. 779.320).
As with establishments previously listed in Sec. 779.317, the
Department will apply its interpretations set forth in Sec. 779.318
and elsewhere in part 779 to determine whether establishments
previously listed in Sec. 779.320 have a retail concept and satisfy
the additional criteria necessary to qualify as retail or service
establishments. All establishments may be recognized as retail if they
satisfy these criteria, not just those previously listed in Sec.
779.320. And the Department will promote consistent treatment for
purposes of the section 7(i) exemption by applying the same retail
concept analysis to all establishments.
For the foregoing reasons, the Department concludes that withdrawal
from part 779 of the ``partial list of establishments'' that it viewed
as having ``no retail concept'' and the separate ``partial list of
establishments'' that, in its view, ``may be recognized as retail'' is
warranted and hereby withdraws Sec. Sec. 779.317 and 779.320.
Nothing in this action should be construed to suggest that any
particular type of establishment previously listed by the Department
is, or is not, a retail establishment.
IV. Administrative Procedure Act
The Department concludes that notice-and-comment rulemaking is not
required to withdraw Sec. Sec. 779.317 and 779.320 from part 779. The
APA provides that its general notice-and-comment requirements do not
apply to ``interpretative rules.'' 5 U.S.C. 553(b); see also Perez v.
Mortgage Bankers Ass'n, 575 U.S. 92, 101 (2015) (evaluating
subregulatory guidance that was an ``interpretive rule'' and explaining
that ``[b]ecause an agency is not required [by the APA] to use notice-
and-comment procedures to issue an initial interpretive rule, it is
also not required to use those procedures when it amends or repeals
that interpretive rule''). Because the regulations in part 779 are
interpretive rules, the Department declined to engage in notice-and-
comment rulemaking when it initially promulgated the Sec. Sec. 779.317
and 779.320 lists in 1961, see 26 FR 8333, and when it later amended
them in 1970 and 1971, see 35 FR 5856; 36 FR 14466. Accordingly, the
Department is not required to engage in notice-and-comment rulemaking
to withdraw the lists today, and it declines to do so as it has
declined in the past.
Similarly, the APA does not require agencies to delay the effective
date of ``interpretative rules'' following publication in the Federal
Register. 5 U.S.C. 553(d)(2). Because the regulations in part 779 are
interpretive rules, the Department declined to delay the effective date
when it initially promulgated the Sec. Sec. 779.317 and 779.320 lists
in 1961, see 26 FR 8333, and when it later amended them in 1970 and
1971, see 35 FR 5856; 36 FR 14466. Consistent with this prior practice,
the Department declines to delay the effective date of its withdrawal
of Sec. Sec. 779.317 and 779.320; the withdrawal takes effect
immediately.
List of Subjects in 29 CFR Part 779
Reporting and recordkeeping requirements, Wages.
Dated: May 8, 2020.
Cheryl M. Stanton,
Administrator.
For the reasons set forth above, the Department of Labor amends
Title 29, Part 779 of the Code of Federal Regulations as follows:
[[Page 29870]]
PART 779--THE FAIR LABOR STANDARDS ACT AS APPLIED TO RETAILERS OF
GOODS OR SERVICES
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1. The authority citation for part 779 continues to read as follows:
Authority: Secs. 1-19, 52 Stat. 1060, as amended; 75 Stat. 65;
Sec. 29(B), Pub. L. 93-259, 88 Stat 55; 29 U.S.C. 201-219.
Sec. 779.317 [Removed and Reserved]
0
2. Remove and reserve Sec. 779.317.
Sec. 779.320 [Removed and Reserved]
0
3. Remove and reserve Sec. 779.320.
[FR Doc. 2020-10250 Filed 5-18-20; 8:45 am]
BILLING CODE 4510-27-P