FLSA2018-21 — Retail or service establishment and the 7(i) exemption

U.S. Department of Labor Wage and Hour Division
Washington, DC 20210

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FLSA2018-21
August 28, 2018
Dear Name*:
This letter responds to your request for an opinion letter concerning whether the Fair Labor
Standards Act (FLSA)’s “retail or service establishment” exemption applies to sales
representatives at your client’s business. The opinion below is based exclusively on the facts
you have presented. You have represented that you do not seek this opinion for any party that
the Wage and Hour Division (WHD) is currently investigating, or for use in any litigation that
commenced prior to your request.
BACKGROUND
Your letter states that your client “sells a technology platform to merchants that enables online
and retail merchants to accept credit card payments from their customers from a mobile device,
online, or in-person.” Your client operates in a highly competitive industry and employs sales
representatives to promote its platform to merchant-customers. Your client’s technology
payment platform “cannot be resold, as the platform is designed for each specific merchant,” and
the sale of this platform constitutes 100 percent of your client’s sales.
GENERAL LEGAL PRINCIPLES
The FLSA exempts from its overtime pay requirements certain employees of “retail or service
establishment[s].” 29 U.S.C. § 207(i). The exemption applies to any employee for whom the
following three requirements are satisfied:
• the employee works at a retail or service establishment,
• the employee’s regular rate of pay exceeds one and one-half times the applicable
minimum wage in the workweek in which he or she works overtime, and
• more than half of the employee’s earnings in a representative period consist of
commissions.
Id.
The United States Supreme Court recently held that exemptions under the FLSA deserve a “fair
(rather than narrow) interpretation” because the exemptions are “as much a part of the FLSA’s
purpose as the overtime-pay requirement.” Encino Motorcars, LLC v. Navarro, 138 S. Ct. 1134,
1142 (2018) (internal quotation marks and citation omitted). Accordingly, WHD must apply a
“fair reading” standard to all exemptions to the FLSA—including the Section 7(i) exemption
addressed in this letter.

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OPINION
Your letter focuses primarily on the first requirement under Section 7(i), that is, whether your
client qualifies as a “retail or service establishment.” To qualify as a “retail or service
establishment,” (1) your client must “engage in the making of sales of goods or services”; (2)
“75 percent of its sales of goods or services, or of both, must be recognized as retail in the
particular industry”; and (3) “not over 25 percent of its sales of goods or services, or of both,
may be sales for resale.” 29 C.F.R. § 779.313.
A business typically satisfies the first requirement if it “sells goods or services to the general
public,” “serves the everyday needs of the community,” “is at the very end of the stream of
distribution,” disposes its products in “small quantities,” and “does not take part in the
manufacturing process.” 29 C.F.R. § 779.318(a). The information you have provided indicates
that your client satisfies these criteria, in part because your client sells its platform to a variety of
purchasers, the platform serves their everyday needs, the platform is not distributed further once
sold, and your client does not sell large quantities of the platform to any single customer. The
fact that your client sells its platform to commercial entities does not change this conclusion;
indeed, a business may qualify for the exemption even if it sells “certain products almost never
purchased for family or noncommercial use.” 29 C.F.R. § 779.318(b) (a “precise line... cannot
be drawn”); see also Idaho Sheet Metal Works, Inc. v. Wirtz, 383 U.S. 190, 200-03 (1965) (sale
to a business purchaser can be a retail sale).
Courts have confirmed that businesses may qualify as retail or service establishments when their
customers and end-users, like those of your client, are predominantly commercial entities. See,
e.g., Alvarado v. Corporate Cleaning Servs., Inc., 782 F.3d 365, 369-71 (7th Cir. 2015)
(window-cleaning business that provided services to various businesses and entities constituted a
retail or service establishment for purposes of the Section 7(i) exemption); Charlot v. Ecolab,
Inc., 136 F. Supp. 3d 433, 468-69 (E.D.N.Y. 2015) (business that sold cleaning supplies and
related products to other businesses qualified as a retail or service establishment for purposes of
the Section 7(i) exemption) (citing 29 C.F.R. § 779.318(b); Wirtz, 383 U.S. at 203); Schwind v.
EW & Assocs., Inc., 371 F. Supp. 2d 560, 565-67 (S.D.N.Y. 2005) (business that provided
computer training to commercial businesses constituted a retail or service establishment for
purposes of the Section 7(i) exemption). Notably, courts have also confirmed that “case law
does not require a physical location accessed by the public” for the sales to be made to the
general public. See Selz v. Investools, Inc., 2011 WL 285801, at *6 (D. Utah Jan. 27, 2011); see
also 29 C.F.R. § 779.319 (a business “is available and open to the general public even if it
receives all its orders on the telephone”). Thus, your client may still qualify for the retail or
services exemption even if it sells its platform primarily online.
As to the second requirement, the information you have provided indicates that your client’s
sales of its platform are retail sales, not wholesale sales. See 29 C.F.R. §§ 779.327, 779.328
(distinguishing between retail and wholesale sales). Your client does not sell large quantities of
the platform to individual purchasers. Further, as noted in Alvarado, a business does not engage
in wholesale merely because purchasers of its product use the product, in turn, to serve their own
customers and may even raise prices to recover the cost of the purchase. See 782 F.2d at 369 (“It
would be absurd to suggest that a dealer in motor vehicles, when it sells a truck to a moving
company, is ‘wholesaling’ the truck because the buyer will doubtless try to recover the cost of

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the purchase in the price he charges for his moving services, which utilize the truck.”). Please
note, however, that although WHD has “considerable discretion” when making determinations
regarding whether sales are recognized as retail in a particular industry, the “responsibility for
making final decisions... rests with the courts.” 29 C.F.R. § 779.325.
Your client also satisfies the third requirement because its payment platform is not resold. “The
common meaning of ‘resale’ is the act of ‘selling again.’ A sale is made for resale where the
seller knows or has reasonable cause to believe that the goods or services will be resold.” 29
C.F.R. § 779.331. As you have indicated, your client’s platforms “cannot be resold” because
they are “designed for each specific merchant.”
Given these considerations and the specific facts you provided, your client constitutes a retail or
service establishment under 29 U.S.C. § 207(i). Consequently, the FLSA’s retail or service
establishment exemption will apply to any of your client’s employees whose regular rate of pay
exceeds one and one-half times the applicable minimum wage for workweeks in which they
work overtime, and whose commissions constitute more than half of their earnings.
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We trust that this letter is responsive to your inquiry.
Sincerely,

Bryan Jarrett
Acting Administrator
*Note: The actual name(s) was removed to protect privacy in accordance with 5 U.S.C. §
552(b)(7).

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You have indicated that your client’s platform essentially acts as an intermediary between the merchant, customer,
and credit card company. To the extent that your client is functioning as a bank or providing loan services to its
merchant-customers aside from the payment platform, your client may not qualify for the exemption and should be
aware of relevant precedent in this area. See, e.g., Mitchell v. Kentucky Finance Corp., 359 U.S. 290, 292-95
(1959). Your letter does not indicate this is the case, and for purposes of this letter, we assume that it is not.