“Retail or service” is a classic example of a phrase of which the apparent plain language meaning does not bear a strong relationship to its legal or practical meaning for purposes of application of the 7(i) exemption. In determining whether an employee works in an industry properly deemed “retail or service” (and accordingly establishing eligibility for the exemption provided the other two criteria of receiving at least 50% of wages via commissions and receiving time and one-half the minimum wage for all hours worked are met), most courts continue to adhere to the longstanding regulations and case law relating to the abolished “retail and service” exemption (prior 29 U.S.C. 213(a)(2)).

In a decision adhering to this historical interpretation, a federal district judge recently ruled that a company selling term life insurance directly to policyholders is not a “retail or service” establishment within the meaning of the exemption. Burden v. SelectQuote Ins. Servs., 2012 U.S. Dist. LEXIS 7934 (N.D. Cal. Jan. 23, 2012). In Burden, Judge Saundra Brown Armstrong specifically referenced the longstanding DOL regulation requiring that an establishment with a “retail concept” meet the following test “(1) it typically ‘sells goods or services to the general public,’ (2) ‘serves the everyday needs of the community in which it is located,’ and (3) ‘performs a function in the business organization of the Nation which is at the very end of the stream of distribution, disposing in small quantities of the products and skills of such organization and does not take part in the manufacturing process.’” Id. at *21 quoting 29 C.F.R. § 779.318(a). Citing to a companion DOL regulation which “expressly identifies ‘insurance’ as being among the ‘list of establishments to which the retail concept does not apply,’” Judge Armstrong rejected Defendant’s attempts to avoid the “preclusive effect” of that latter regulation by arguing that their telephone sales of insurance distinguished their business from the traditional “insurance” business identified in the regulation. In the Court’s view, “[a]lthough SelectQuote has changed the method by which an agent sells life insurance—namely, directly by telephone instead of face-to-face—the fact remains that SelectQuote is still selling life insurance.” Id. at * 26 (emphasis in original). This ruling rejected application of the more expansive view of “retail or service” espoused in Selz v. Investools, Inc., 2011 U.S. Dist. LEXIS 9364 (D. Utah Jan. 27, 2011)(company which sold “products and services to educate individual investors on how to personally invest in exchange markets on-line” qualified as retail or service).

7(i) is a valuable exemption for employers, as successful commissioned employees are often highly compensated, but it must be utilized with due care, after consultation with counsel, and, as always, heeding state law requirements.  Interestingly, the plaintiffs in this action were found exempt from overtime under California law since the California state law exemption is not premised on the application of a “retail or service” concept. That exemption is discussed in greater detail in this recent posting from our colleagues at Jackson Lewis’ California Workplace Law Blog.