The exemption of overtime pay for employees of two types of establishments, one being retail or service and the other being movie theaters, is clarified in two opinions issued by the U.S. Department of Labor (“DOL”) on August 28, 2018. Even though the two opinions contain different criteria for determining the applicability of the exemption, there is parallel consideration of the nature of their businesses in the evaluation process.
Retail and Service Establishments
The applicability of an overtime exemption, under 29 U.S.C. §207(i), for retail and service establishments employing sales representatives is discussed in FLSA 2018-21. In this instance, the company is an online technology platform whose customers include other businesses.
While there are three elements to determining whether a company is exempt under 29 U.S.C. §207(i), the opinion letter FLSA 2018-21 concentrates on determining whether the company in question is considered a “retail or service” establishment, which is the first requirement. In analyzing this question, FLSA 2018-21 analyzes the nature of the online business by looking at three factors which are also addressed separately below.
- Who it makes its product available to
- How much it sells to individual customers
- If it makes a product meant to be resold
Who do they make their product available to?
FLSA 2018-21 clarifies that the online business is recognized as a retail or service establishments under 29 U.S.C. §207(i) even though it sells their technology platform to other businesses for their use. By looking at the nature of how the online business operates, FLSA 2018-21 determines it makes its product available to the general public, even though its clientele mostly includes other businesses.
How much does it sell to individual customers?
FLSA 2018-21 considers the nature of retail versus wholesale sales as well; for instance, wholesale clients typically buy a larger amount of the product at a lower rate. Furthermore, FLSA 2018-21 points out that it is irrelevant if the customers buying the technology platform intend to use it to serve their own customers. As such, FLSA 2018-21 finds the nature of this online business consists of retail sales rather than wholesale.
Are they selling a product meant to be resold?
Furthermore, FLSA 2018-21 acknowledges that this online business has no intention of its product, the technology platform, being resold because by design it is meant to only be used by the customer in which the business directly sells the product to. Once again, the nature in which the product is designed affects a determination of whether the product is meant for the buyer to resell to their own customers.
While in this instance the online business’ technology platform is designed to be used specifically by its customer and is not able to be resold to their own customers, businesses still need to consider whether their customers may resell their products. FLSA 2018-21 points out, under 29 C.F.R. §779.331, the seller is held to a reasonable person standard in anticipating whether their product will be resold, or whether they should have reasonably known of the buyer’s intention to do so.
Businesses employing sales representatives can enjoy the overtime exemption under 29 U.S.C. §207(i) if the nature in which they do business involves making their products available to general public, engaging in sales that are recognized as retail rather than wholesale, and being reasonably unaware that their products are bought with the intention to resell.
Movie Theater Overtime Exemption
The applicability of an overtime exemption, under 29 U.S.C. §207(i), for movie theaters is discussed in FLSA 2018-23. Just as the nature in which a retail or service establishment does business affects whether they must pay employees overtime, the nature in which a movie theater integrates their food service operations with that of the movie theater affects whether the business qualifies for the overtime exemption.
FLSA 2018-23 states that it is “nature of [their] business, not the work performed by a particular employee” that determines if the overtime exemption applies. When it comes to movie theaters, FLSA 2018-23 considers the nature in which the business separates or integrates the operations of its movie theater and food services in terms of physicality, accounting, and employee interaction. For instance, the way the business files taxes and pays its employees from both operations affects whether they can be recognized as a single establishment for purposes of the overtime exemption.
Altogether, the degree to which both operations are integrated determines the applicability of an overtime exemption.
Based on the two opinions issued by the Department of Labor, businesses should keep in mind the nature in which they do business whether it be how they sell its goods or services or how they manage the business and maintain business records. While the case of sales representatives involves looking at how a business sells its goods or services, movie theaters must consider the way its runs the business and maintains records. Despite the different approaches, the applicability of an overtime exemption requires a comparable analysis of the nature of how they do business.
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