A Pennsylvania company that sells Sprint cellular phones, service plans, and cell-phone accessories is a “retail or service establishment” under the 7(i) exemption, a Pennsylvania district court holds, granting partial summary judgment to the employer. Haskins v. VIP Wireless LLC 300, 2010 U.S. Dist. LEXIS 106205 (W.D. Pa. Oct. 5, 2010). A sales representative employed by VIP Wireless alleged that he and over 100 other sales representatives were misclassified as exempt because they did not meet the requirements of the administrative exemption (due to a failure to exercise independent discretion and judgment) or the executive exemption (since they did not supervise two or more people). But he and his counsel failed to consider the applicability of the “7(i)” exemption.
Unlike many FLSA exemptions, the 7(i) exemption does not depend on the duties of the employee, but rather on his or her compensation and the business of the employer. The exemption applies to employees of a “retail or service establishment” who earn at least 50% of their compensation from commissions and at least one and one-half times the minimum wage for all hours worked. Often, as here, the issue in cases applying the exemption is whether the particular establishment meets the definition of a “retail or service establishment.”
Citing Department of Labor regulations, the Court held a retail or service establishment is one that typically sells goods and services to the general public (as compared to the wholesale market); sells goods or services that meet the everyday needs of the community; provides for the “comfort and convenience of the public” in the course of its daily living; and sells goods and services at the end of the distribution stream. The Court had little difficultly in concluding the cell-phone stores met this standard—noting that in this day and age, cell phones certainly meet an “everyday need”, they are sold to the general public, and they are not purchased by consumers or businesses with the intent of reselling them.
Relying on a DOL list of entities lacking a retail concept contained in the FLSA regulations, the Plaintiff argued the cell-phone retailer was not a “retail or service establishment” but rather a “telephone company”, an entity specifically identified by the DOL as lacking a retail concept. The Court rejected this argument. “VIP Wireless was a type of ‘exclusive distributor,’ ‘authorized agent’ or other form of contractor whose function was to solicit customers for Sprint and Nextel cell phones and service plans and to provide a retail outlet for those products. . . . VIP Wireless was an outlet for Sprint/Nextel, a telecommunications or telephone company, but it was not itself such a company,” the Court held. It cited, among other things, the “Preferred Retailer” agreement VIP Wireless entered into with Sprint as support.
Although the Court’s decision only resolved whether one prong necessary to establish the exemption had been met, the employer argued that given the individualized inquiry necessary to assess the other two prongs (50% commissions and 1.5 times the minimum wage), the collective action allegations should be dismissed. The Court found, however, that it was too soon to determine whether individual inquires would predominate, and a determination whether the case could proceed collectively would have to await further discovery and would be resolved when the plaintiff made a motion for conditional certification. Employers in the retail and service industries with commissioned employees should carefully analyze the potential applicability of the 7(i) exemption.