The overtime exemption applicable to "retail or service" employees codified at 29 USC § 207(i) has three requirements, as we have discussed in this space, and two of the requirements are readily met in many cases: the employee must receive time-and-one-half the minimum wage (currently $10.88/hour under federal law) for all hours worked inclusive of commissions, and the employee must earn 50% or more of his or her income in the form of commissions. While litigation has arisen regarding whether certain payments constitute commissions, one element of the 7(i) exemption also sometimes resulting in litigation is the third prong: whether the employer’s business is "retail or service."  In a new decision, a Texas federal court held that the exemption was applicable to employees who provide tax consulting services to individuals, rejecting DOL regulations delineating which establishments are retail or service. Wells v. Taxmasters, Inc., 2012 U.S. Dist. LEXIS 133825 (S.D. Tex. Sept. 18, 2012).

In determining that defendant’s tax consulting services qualified as a "retail or service"  establishment, the court observed that the Fifth Circuit has declined to follow strictly the Department of Labor’s list of retail establishments set forth in the Department’s regulations. Analogizing tax services to undertaking services (identified in the regulation as retail), the court ruled that "each member of the community does not require tax services on a daily basis any more than they require frequent visits to the undertaker. Yet, these services derive inevitably from the only two certainties in life," the court observed.  "Such certain, but periodic, services," the court continued, "are no less retail in nature than the sale or repair of automobiles, radios and refrigerators, all retail concepts.   Id. at * 19 quoting 29 C.F.R. § 779.318.

The decision adds clarity to the determination of what constitutes a covered establishment under 7(i).