Latest Department of Labor Opinion Letter Addresses the FLSA’s Retail/Service Establishment Employee Exemption

The U.S. Department of Labor’s Wage and Hour Division (“WHD”) continues to issue guidance at a rapid pace, releasing a new opinion letter regarding the retail or service establishment overtime exemption under the Fair Labor Standards Act (“FLSA”).  The letter brings clarity to a recurring issue affecting retailers.

FLSA Section 7(i) Exemption

As background, FLSA Section 7(i) exempts a retail or service establishment employee from the FLSA’s overtime pay requirements if (i) the employee’s regular rate of pay exceeds 1.5 times the federal minimum wage for any week in which the employer seeks to claim the exemption and (ii) more than half of the employee’s compensation “for a representative period (not less than one month)” represents commissions on goods and services.  29 U.S.C. § 207(i).  In Opinion Letter FLSA2019-13, the WHD provided guidance on the representative period requirement, addressing whether four weekly pay periods or two bi-weekly pay periods, or alternatively, six consecutive weekly pay periods or three bi-weekly pay periods constitute a valid representative period.

As the WHD observed, the implementing regulations provide no guidance on the meaning of the phrase “not less than one month” other than the self-evident statement that the period cannot “be less than 1 month.”  29 C.F.R. § 779.417(c).  Accordingly, the WHD proceeded to interpret this language, guided by the Supreme Court’s holding in Encino Motorcars, LLC v. Navarro that FLSA exemptions receive a fair and appropriate reading.  Relying on Supreme Court and other case law, the WHD posited that a fair reading of a “month” is a “calendar month”—i.e., the period of time from a given day of a particular month in the calendar to the corresponding day of the following month.  Under this interpretation, the WHD concluded that four weekly pay periods or two bi-weekly pay periods are not a calendar month because, with the exception of February, “four weeks from any given date of one month will necessarily fall short of the corresponding date of the next month,” but that six consecutive weekly pay periods or three bi-weekly pay periods would satisfy the calendar month requirement.  The WHD also cautioned that a six-week period may not be “representative”—a separate requirement for the Section 7(i) exemption—and declined to analyze whether the period at issue was sufficiently “representative.”

Consistent with our previous blogs on WHD’s opinion letters, employers should review these letters carefully and consult with experienced counsel with any questions.