The 7(i) exemption from overtime is not limited to “local” retail or service establishments, and applies to employers who sell nationwide via phone or the internet, a Utah district court has held, rejecting DOL regulations, and finding them antiquated. See Selz v. Invest Tools, Inc., 2011 U.S. Dist. LEXIS 93604 (D. Utah, Jan. 27, 2011). 

Plaintiffs were employed as sales representatives at a call center and were responsible for selling, via phone, products and services to educate individual investors on how to personally invest in exchange markets on-line. In response to a suit for alleged unpaid overtime initiated by sales representatives, the employer moved for summary judgment based on the 7(i) exemption, which applies to employees who earn than 1.5 times the minimum wage, make over 50% of their income in commissions and are employed in a “retail or service establishment.” The court rejected plaintiff’s argument that the exemption could not apply because defendant sold their products nationally, not locally, finding the persuasive value of the DOL’s regulations defining a retail or service establishment to be “minimal,” noting they were drafted for the repealed 13(a)(2) exemption formerly applicable to all retail and service employees. The court further noted the regulations have not been updated to reflect the impact of the Internet. “The internet has fundamentally changed what is considered a retail or service establishment and insofar as the Department of Labor regulations do not take this into account, they are not a persuasive interpretation of the FLSA,” the court held.

In evaluating whether the call center was a “retail or service establishment,” the court examined whether the establishment sold goods to the general public, served the everyday needs of the community, was at the end of stream of distribution, and whether it took part in the manufacturing process, all of which the court held were satisfied. Further, the court held even though the employer did not have a physical location accessible by the public, it was accessible via phone and internet and thus, had an establishment available to the public that met its everyday needs. 

While the court granted summary judgment to the employer regarding its status as a “retail or service establishment,” the court denied summary judgment as the applicability of the exemption, finding a fact issue whether the employees earn 1.5 times minimum wage for each hour worked, one of the other requirements needed to establish the exemption.

The case reflects a growing trend of district courts recognizing that Department of Labor regulations defining a “retail or service establishment” are antiquated and are of limited use in interpreting the 7(i) exemption, given the changes in how business is now conducted, particularly through phone sales and the internet. Employees who sell via phone or internet should evaluate the applicability of the 7(i) exemption in light of this decision. Of course, state law also must be consulted.