Under 29 U.S.C. § 207(i) of the FLSA, employees of a “retail or service establishment” who receive 1.5 times the minimum wage for all hours worked and receive at least 50% of compensation in commissions for a representative period are exempt from overtime payments.   This exemption is generally referred to as the 7(i) exemption.  Recently, Magistrate Judge Dolinger of the United States District Court for the Southern District of New York issued a Report and Recommendation analyzing whether a “client relationship manager” for a technology company providing web site design was covered by the exemption.  The Company also provided staffing services, though the extent of such services was disputed.  Since the employee received sufficient commissions and 1.5 times the minimum wage, the only disputed issue on summary judgment was whether the employer qualified as a “retail or service establishment.”

While acknowledging that the term “retail or service establishment” was ambiguous, after reviewing legislative and judicial history, and a United States Department of Labor opinion letter, the Court held that the employer had not established, for purposes of summary judgment, that it was a retail or service establishment.  In order for the defendant to establish that its creation of web sites for commercial clients qualified as a retail service, the Court held, “it must demonstrate that there is a notion of retail sales and services in the computer-programming industry of which it is a part, and furthermore that within that industry the activities performed by [defendant] are considered to be retail services.”  In holding the employer failed to meet its burden, the Court distinguished prior cases holding that companies providing computer training to businesses were covered by the exemption.  The Court found designing web sites for businesses is different from providing computer training, relying principally on a 1994 USDOL opinion letter that found the sale of hardware and software to corporate clients was not a retail activity.  The Court also expressed its opinion that providing staffing services to clients (e.g., providing personnel to perform services such as operating help desks for corporate clients) are also not “retail services.” Kelly v. A1 Technology, 2010 U.S. Dist. Lexis 37807 (S.D.N.Y. April 8, 2010),

The Report and Recommendation will now be reviewed by the District Court Judge assigned to the case, Judge Kaplan.