Here’s one I didn’t see coming – the U.S. Department of Labor (DOL) issued Opinion Letter FLSA2021-6 today, along with three others (see my other blog posts), which concluded that staffing firms that recruit, hire, and place employees on temporary assignments with clients may qualify as a “retail or service establishment” for purposes of an overtime exemption under 29 U.S.C. 7(i) – commonly referred to as the “retail sales exemption”. What makes this opinion so notable is that prior to May 2020, the DOL actually had “employment agencies” on its list of examples of establishments that categorically could not qualify for the retail sales exemption (the DOL withdrew the list as it was called a “mindless catalog” and incohesive buy several courts).
Citing Encino Motorcars, LLC v Navarro, 138 S.Ct. 1134 (2018), the DOL reiterated that the U.S. Supreme Court’s holding now requires the FLSA be given a “fair”, rather than “narrow”, interpretation. In order to determine whether a staffing firm is a “retail or service establishment” three factors must be met: (1) it must engage in sales of goods and services; (2) 75% must be retail (as recognized in its industry); and (3) not more than 25% of such sales may be for resale. Thus, under a “fair” reading of 7(i), the DOL noted that staffing firms may qualify as a “retail or service establishment when the three factors are met:
- A staffing agency provides temporary staffing and permanent recruitment services – this qualifies as “sales of goods or services”.
- While not opining as to whether the staffing industry recognizes such services as “retail”, that is not (by itself) controlling, and that “WHD sees no reason why staffing firms cannot also qualify” as having a retail concept – meeting the second factor. The DOL noted that the “sales of recruitment and staffing services may be properly recognized as retail by the staffing agency.”
- The third factor will be met unless the particular staffing company refers a worker (for a fee) to a second staffing company (that ultimately assigns the individual worker to a business).
Finally, as exciting as this may be, keep in mind that even if the employer (temporary staffing agency) meets the exemption requirements, the employee must also meet three factors to be exempt from overtime under the 7(i) exemption: (1) work at a retail or sales establishment (see above analysis); (2) their regular rate must be at least 1.5x minimum wage; and (3) more than 50% of their earnings must be commissions based. Thus, the only individuals this would practically apply to are likely temporary salespersons who make at least 1.5 times minimum wage, but obtain most of their compensation based on commissions.