This article is the second part of the discussion of employer’s defense against overtime wage claims based on the commission sales overtime wage exemption, set forth in 18 U.S.C. § 207(i). exemption that allows certain businesses to not pay the employees paid mostly with commissions an overtime premium. Peter Mavrick is a Fort Lauderdale employment lawyer who defends Florida businesses and their owners against lawsuits seeking overtime and other wages.
As discussed in further detail herein, many federal courts have rejected United States Department of Labor regulations interpreting this exemption. The regulations often do not make sense either because they are contradictory or are outdated in light of the modern economy. Many of the regulations were issued before globalization and the transition of the American economy from a manufacturing to a service economy.
Consequently, federal courts have recognized that Department of Labor regulations applying the commission-sales exemption are arbitrary and not deserving deference. Some of the regulations are either contradictory or make no sense. For example, one regulation (29 C.F.R. § 779.319) states that a refrigerator repair shop has a retail concept even if orders are taken over the telephone and work is done in the home, but another regulation (21 C.F.R. 779.317) somehow states that air conditioning contractors do not have a retail concept. These two businesses perform the exact same job, on essentially the same equipment, for the exact same customers and are distinguishable only by the scale and degree of cooling that are provided by the machines being repaired. There is no apparent reason for distinguishing these two businesses. Successful defense of a business when the regulations lack apparent rational basis can lead federal courts to rule in favor of the business despite clear violation of the Department of Labor’s regulation.
For example, the federal appellate court in Reich v. Delcorp, Inc., 3 F.3d 1181 (8th Cir. 1993), ruled in favor of the employer business even though the employer clearly violated the Department of Labor’s regulation (29 C.F.R. 779.317) stating that laundries cannot exempt commission-sales employees from overtime because laundries do not have a “retail concept.” However, the federal appellate court in Reich held that the Department of Labor’s regulation is not worth following, and the commission-sales employee lost the overtime wage case. Federal courts in other cases, including Martin v. Refrigeration Sch., Inc., 968 F.2d 3, 7 (9th Cir. 1992) and Viciedo v. New Horizons Computer Learning Ctr. of Columbus, Ltd., 246 F. Supp. 2d 886, 893 (S.D. Ohio 2003), have ruled in favor of businesses and rejected the Department of Labor’s regulations in the context of commission sales of educational services. Similarly, the federal court in Buttita v. DIRECTV LLC, 3:14CV566/MCR/EMT, 2017 WL 10456972 (N.D. Fla. Sept. 28, 2017), rejected the Department of Labor’s regulation and ruled in favor of the business, i.e., a cable and satellite installation company because the employee was exempt from overtime wages.
In Alvarado v. Corp. Cleaning Services, Inc., 782 F.3d 365 (7th Cir. 2015), the federal appellate court rejected the Department of Labor’s regulation and ruled in favor of the employer in the context of window washers for high-rise buildings qualified as a retail or service establishment. Alvarado mocked the Department of Labor’s regulation requiring “retail concept” for a business to qualify for the overtime wage exemption. The appellate court explained that “[t]he plaintiffs argue that the sale of window-washing services to managers of tall buildings ‘lacks a retail concept,’ whatever that might mean.” Alvarado stated that the regulations contain “no explanation for the choice of which firms to describe as lacking a retail concept. Most of them sell goods and services to the actual user of the service or product, rather than wholesaling them to a retailer who will resell them to the actual user.”
Effective defense of employers requires examination of whether the applicable regulation makes sense, especially in the context of many courts rejecting the Department of Labor’s regulations.
Peter Mavrick is a Fort Lauderdale employment attorney who represents the interests of businesses and their owners. This article does not serve as a substitute for legal advice tailored to a particular situation.