DOL Issues New Wage and Hour Opinion Letters

September 04, 2018

The U.S. Department of Labor (DOL) issued ew letters in response to requests for opinions under the Fair Labor Standards Act (FLSA). In this most recent slate of letters, the DOL offers guidance on compensable time, the retail sales exemption, and volunteers. SESCO has a long history of ensuring that employers are compliant with federal and state wage and hour requirements; if employers have any questions or concerns about their pay practices, we recommend they contact us to ensure compliance.

Compensable Time

The DOL concluded that an employer need not pay an employee for time spent voluntarily participating in certain wellness activities, biometric screenings, and benefits fairs, whether during or outside of regular working hours.

The activities at issue, which the employee could choose to participate in or not to participate in, included:

  • Biometric screening, which tests, among other things, cholesterol levels, blood pressure, and nicotine usage.
  • Wellness activities, including (1) attending an in-person health education class and lecture; (2) taking an employer-facilitated gym class or using the employer-provided gym; (3) participating in telephonic health coaching and online health education classes through an outside vendor facilitated by the employer; (4) participating in Weight Watchers; and (5) voluntarily engaging in a fitness activity.
  • Attending a benefits fair to learn about topics such as financial planning, employer-provided benefits, or college attendance opportunities.

With respect to each of these activities, the DOL noted that participation is entirely optional on the employee’s part (although participation in certain activities could decrease his or her insurance premiums or deductibles), the activities are not related to the employee’s job duties, and the employer receives no direct financial benefit as a result of employee participation.

The DOL explained that compensability of an employee’s time depends on whether the time is spent predominantly for the employer’s benefit or for the employee’s benefit. Because the activities at issue in the opinion letter predominantly benefit the employee, they do not constitute compensable worktime under the FLSA.

The DOL also viewed the time spent in such activities as non-compensable “off duty” time under the FLSA regulations —periods during which employees are completely relieved from duty and which are long enough to enable them to use the time effectively for their own purposes. This is notable, because under other rules governing the compensability of certain time, the mere fact that the activity occurs during regular working hours—as opposed to outside of regular working hours—is by itself sufficient to obligate the employer to pay for the time, even if attendance is purely voluntary and the activity is not job-related.See29 C.F.R. § 785.27 (regarding attendance at lectures, meetings, training programs, and “similar activities”). By contrast, time spent in the wellness activities, biometric screenings, and benefits fairs is not compensable regardless of whether the activities occur during regular working hours.

Overriding all of these principles is the federal break time rule, under which breaks of “up to 20 minutes” are ordinarily compensable, regardless of how the employee chooses to spend his or her time during the break. Applying this rule to the activities at issue here, the DOL noted that “if the employer provides all employees with a 20-minute break each day, the employer must still compensate an employee for that break if he or she chooses to spend it participating in wellness activities, biometric screenings, and benefits fairs.”

Retail Sales Exemption

The DOL concluded that a company that “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” is a “retail or service establishment” for purposes of the “retail sales” exemption in Section 7(i) of the FLSA.

Under the exemption, an employee is exempt from the federal overtime requirements if 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; and
  • more than half of the employee’s earnings in a representative period consist of commissions.

The second and third prongs of the exemption are fairly straightforward. Analyzing the first prong—whether or not the employee works at a “retail or service establishment”—has become increasingly more complicated as the retail sales industry has evolved from a landscape of “brick and mortar” businesses to a platform driven by technology and e-commerce.

Under federal regulations, to qualify as a “retail or service establishment,” (1) a company 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 [more than] 25 percent of its sales of goods or services, or of both, may be sales for resale.”

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.” The DOL concluded that the company satisfies these criteria, in part because it sells its platform to a variety of purchasers, the platform serves their everyday needs, the platform is not distributed further once sold, and the company does not sell large quantities of the platform to any single customer. That the company sells its platform to commercial entities does not change the conclusion; as the DOL explained, a business may qualify for the retail sales exemption even if it sells “certain products almost never purchased for family or noncommercial use.”

That the company did not offer its goods or services though a physical location accessible by the public also does not change the conclusion. Citing case law, the DOL noted that a company may still qualify for the exemption if it sells its goods or services primarily online.

On these facts, the DOL concluded that the company satisfied the definition of “retail or service establishment”.

For the first time in an opinion letter, the DOL cited to the Supreme Court’s recent decision inEncino Motorcars, LLC v. Navarro(Apr. 2, 2018), in which the high court abandoned the longstanding notion that FLSA exemptions are to be construed narrowly. As the DOL explained, underEncino Motorcars, FLSA exemptions 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.”

Volunteers

The DOL concluded that members of a nonprofit organization (NPO) who serve as “examination graders” for a one-to-two week period can be classified as volunteers instead of employees if they do not receive a fee for their services.

The NPO at issue administers certain professional examinations as part of a credentialing process. Each year, it selects a number of its already-credentialed members to serve as examination graders. Those selected to serve as graders are successful and highly compensated executives and professionals who often use one to two weeks of their personal vacation or other leave time to serve as graders. They serve because of the professional achievement of being selected for the role, and to assist the NPO in promoting the high standards of ethics, education, and excellence within the profession.

The NPO pays for the graders’ transportation, accommodations, and meals during their period of service. In the past, the NPO paid graders a flat fee for their services, but plans to discontinue paying the fee.

The DOL has long recognized the “generosity and public benefits of volunteering[,] and allows people to freely volunteer time to religious, charitable, civic, humanitarian, or similar nonprofit organizations as a public service.” Under these circumstances, the DOL ordinarily will not consider such individuals “employees” under the FLSA if they volunteer their services “freely without coercion or undue pressure,” direct or implied, and without contemplation or receipt of compensation.

Applying these principles to the somewhat unique facts, the DOL concluded that the NPO could properly classify the graders as volunteers under the FLSA—provided they were not receiving a fee for their services.

The DOL also concluded that the NPO could continue to pay for the graders’ travel, lodging, meals, and other expenses incidental to volunteering without undermining their volunteer status.