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New DOL opinion letters discuss wage-hour exemptions, third-party payments

By Pamela Wolf, J.D.

The five new opinion letters bring the total number to 61 issued under the Trump Administration.

In five new opinion letters, Wage and Hour Administrator Cheryl Stanton addresses FLSA issues related to the outside-sales exemption, third-party payments in the context of minimum wage compensation, the administrative exemption, and the retail or service commission sales exemption. The June 25 opinion letters were released the same day.

Salespeople who use employer’s mobile assets. Opinion letter FLSA2020-6 addresses whether salespeople who travel to different locations to sell products using their employer’s “mobile assets” (trucks stocked with merchandise, marketing displays, and demonstration units) qualify for the outside sales exemption under Section 13(a)(1). Here, the Administrator found that the employees qualify for the outside-sales exemption because their primary duty is to make sales, and they are customarily and regularly away from the employer’s place of business in performing that primary duty.

Third-party incentive payments. Opinion letter FLSA2020-7 responds to the question of whether an automobile manufacturer’s direct payments (under its incentive program) to an automobile dealership’s employee, compensating the employee for work done on behalf of the dealership, may be counted toward the dealership’s minimum wage obligation to the employee.

Here, the answer depends upon the agreement between the parties, which may be explicit or implied by the particulars of the incentive program, the understanding and practices of the parties, and any other relevant circumstances, according to Stanton. In this case, the facts demonstrate that the payments are—at least implicitly—part of the employment agreement.

Dealerships embrace payments as wages. First, the dealerships embrace these third-party incentive payments as wages, which as the Third Circuit explained strongly suggests the payments are part of the employment agreement. Further, the facts surrounding the implementation of the incentive programs demonstrate these payments’ inclusion in the employment agreement.

Dealerships facilitate payments. Next, the Administrator pointed out that employees know of the specific incentive program terms, which are established by the sponsoring manufacturers and communicated by the dealerships to their sales consultants before they perform their sales work. “The employing dealerships’ role in facilitating these payments is significantly more than serving as a pass-through vehicle,” Stanton wrote. “The dealerships learn program terms, communicate these terms to their employees, and work with incentive program sponsors to determine when payments should be made.”

Under these facts, the incentive payments will be considered part of the employment agreement and count toward minimum wage obligations by the employing automobile dealership.

Outside sales exemption. In opinion letter FLSA2020-8, the Administrator addresses whether salespeople who set up displays and perform demonstrations at retail locations not owned, operated, or controlled by their employer, in order to sell the employer’s products qualify for the outside sales employee exemption under Section 13(a)(1).

The Administrator found that the salespeople at locations other than big-box stores qualify for the outside sales exemption, and the salespeople at those locations qualify for the exemption only if their primary duty is performing sales work that is directed to the consummation of their own sales.

“The employees’ primary duty at events such as trade shows, where the employees make their own sales and no third-party retailer is involved, is sales work directed toward the consummation of their own sales, and would thus qualify for the exemption,” according to Stanton. But sales made through a third-party retailer, as described as occurring at the big-box stores, “may not qualify as sales work directed toward the consummation of their own sales unless the employees obtain a commitment to buy from the customers and are given credit for the sales that were consummated specifically through their efforts,” Stanton explained (emphasis ours).

Administrative exemptions. Opinion letter FLSA2020-9 answers whether emergency-management coordinators employed by a county government qualify for the learned professional or administrative exemptions under Section 13(a)(1).

Here, Stanton noted that to qualify for the administrative exemption, each coordinator’s primary duty must relate to the management or general business operations of the employer or the employer’s customers. In this case, the employer is the county government, and thus, the work would be directly related to management or general business operations of the employer if it relates to assisting with the “running or servicing” of the county government itself or determining its overall course and policies. “As governments exist to serve their citizens, we assume that the ‘customers’ in this instance would be the county’s residents,” the Administrator wrote.

Although the inquiry provided a list of duties, “whether a coordinator qualifies for the administrative exemption depends upon which of these many duties is the primary duty—the principal, main, major, or most important duty the coordinator performs. 29 C.F.R. § 541.700(a). Because we have only a list of duties, we do not have the information necessary to opine on which of them is the primary one,” Stanton concluded.

Retail or service commission sales exemption. In opinion letter FLSA2020-10, the Administrator discusses the application of the retail or service commission sales exemption under Section 7(i) when more than half of an employee’s compensation in the relevant representative period ultimately does not consist of commissions. In this scenario, Stanton assumed that the employer qualifies as a retail or service establishment, that it pays employees a regular rate exceeding one and one-half times the current federal minimum wage in a workweek in which the employee worked overtime hours, and that the commissions paid to employees are bona fide commissions based on the provision of goods or services that the establishment sells.

The inquiry posited two scenarios: (1) the opening of a new store where the sales volume is unknown; and (2) the hiring of a new salesperson with no sales-performance record. Salespersons in these situations are hired as commissioned employees subject to Section 7(i)’s exemption and are guaranteed compensation at one and one-half times the applicable minimum wage for all hours worked during a representative period. The employer tracks the sales and commissions of the salesperson, but the commissions requirement is met in some weeks but not in others, so it cannot determine whether more than half of the compensation that the salesperson will receive by the end of the full representative period will consist of sales commissions at the end of the representative period.

In this case, there is no prior established representative period, so the employer is starting a representative period for a new employee or a new store simultaneously with reliance on the Section 7(i) exemption. “While this scenario is not explicitly addressed in the regulations, nothing in the FLSA prohibits doing this,” Stanton said.

1981 opinion letter. The Administrator cited similar circumstances addressed in a 1981 opinion letter which “recognized that an employer may use Section 7(i) ‘simultaneously with the commencement of the representative period’” (FLSA-897, April 16, 1981). However, the letter also made clear that if an employer chooses to do this, and at the conclusion of that initial representative period, Section 7(i)’s requirement that commissions amount to more than half of compensation for a representative period has not been satisfied, the employer must pay overtime premium compensation for any overtime hours worked during that period.

Under the 1981 opinion letter, the employer could again attempt to establish a representative period for the new employee and at the same time claim the Section 7(i) exemption for that employee on a prospective basis.

“Igniting the engines of our national economic recovery.” “With today’s release, the Wage and Hour Division has now issued 61 opinion letters since January 20, 2017,” Deputy Secretary of Labor Patrick Pizzella noted in a press release. “These letters demonstrate the Department of Labor’s continued commitment to its ongoing mission, while also remaining focused on igniting the engines of our national economic recovery.”