The Fair Labor Standards Act contains an exemption from overtime for employees of a “retail or service establishment” who earn at least 1.5 the minimum wage for all hours worked and more than 50% of their compensation from commissions. This exemption is often referred to as the “retail sales exemption” or “7(i) exemption,” referencing the section in which it is codified. Often the difficulty in applying the exemption lies with determining which establishments fall within the definition of a “retail or service establishment” and which do not. Department of Labor regulations provide a long list of retail non-retail establishments, but several courts have noted the list does not provide any rationale for distinguishing retail and non-retail and is of limited assistance. See e.g., Martin v. The Refrigeration School, Inc., 968 F.2d 3, 7 n. 2 (9th Cir. 1992).
Recently, a California District Court was faced with the question of whether account executives responsible for selling precious metals (e.g., gold and platinum) to customers via phone were employed by a “retail or service establishment,” and thus exempt from overtime under the 7(i) exemption. Parne v. Monex Deposit Co., 2010 U.S. Dist. Lexis 59768. Relying on the definition of a “retail or service establishment” contained in the 13(a)(2) retail and service exemption [now repealed], the Court explained a retail or service establishment is one that (1) does not earn more than 75% of its revenue from goods or services that are provided for resale; and (2) is recognized as retail in the particular industry.
In applying this definition, the Court first held that even though customers typically bought metals for investment purposes with the ultimate goal of reselling them for a profit (some customers did not even take possession of the metal), the precious metals were not goods provided for “resale,” as contemplated by the statute, because the metals were not sold with the understanding the metals would be immediately resold. Second, despite competing evidence regarding whether the industry viewed the Defendant as a retail seller (plaintiffs argued the Defendant was similar to a brokerage house), the Court held that summary judgment was still proper because the Defendant satisfied the standard courts have used in determining whether a particular establishment is “recognized as retail”—it sold goods to the general public; it did not take part in the manufacturing process; it provided a product that served the everyday needs of the community; and, it sold goods at the end of the stream of distribution. The factor that presented a “close question,” according to the Court, was whether selling precious metals served the “everyday needs of the community”. After noting that cases lack a unified approach in answering this question, the Court held “everyday needs” means “basic” or “integral” needs of members in the community, and collecting and investing metals fell within this standard.
As wage and hour cases continue to be an active area of litigation, the different prerequisites for application of the 7(i) exemption, including which services and goods also meet the “basic” or “integral” needs of the community, will likely continue to be litigated. Before utilizing the exemptions, employers relying on the 7(i) exemption, should review the relevant regulations and case law to ensure that their business qualifies as a “retail or service establishment”.