Summer’s not over yet! On August 28, 2018, the U.S. Department of Labor issued four new letters in response to requests for opinions under the Fair Labor Standards Act. In this most recent slate of letters, the DOL offers guidance on compensable time, the retail sales exemption, volunteers, and the motion picture theater exemption.

Compensable Time

In FLSA2018-20, 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.

Citing Supreme Court and Second Circuit precedent, 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.

Interesting… The DOL also viewed the time spent in such activities as non-compensable “off duty” time under the FLSA regulations (29 C.F.R. § 785.16)—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. See 29 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 described in FLSA2018-20 is not compensable regardless of whether the activities occur during regular working hours.

A final note… Overriding all of these principles is the federal break time rule—codified at 29 C.F.R. § 785.18—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

In FLSA2018-21, 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—which is codified at 29 U.S.C. § 207(i)—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 (although there is sometimes ambiguity over what “representative period” should apply to the analysis). 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.” See 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 DOL concluded that the company at issue in FLSA2018-21 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” under 29 U.S.C. § 207(i).

Interesting… For the first time in an opinion letter, the DOL cited to the Supreme Court’s recent decision in Encino 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, under Encino 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

In FLSA2018-22, the DOL concluded that members of a nonprofit organization 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 in FLSA 2018-22, 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.

Interesting… 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.

Motion Picture Theater Exemption

In FLSA2018-23, the DOL concluded that the “motion picture theater exemption” in Section 13(b)(27) of the FLSA applies to the food service operations of motion picture theaters.

At issue are motion picture theaters that provide in-theater dining, including through on-site, full-service restaurants. Patrons must purchase a movie ticket to eat at the on-site restaurants. The food service operations are not separately incorporated and do not operate in any way as separate entities. They do not have separate entrances, operate under different names, file separate taxes, maintain separate bank accounts, place orders separately, pay invoices separately, or use separate bank accounts. At each location, the primary revenue source is the sale of movie tickets.

Theater staff use a single kitchen to prepare food for both the in-theater and full-service dining. The same servers and food runners serve both the in-theater and full-service dining areas. Food service staff also work as theater ushers and vice versa, and all employees are cross-trained to work in any position at each location. Each location uses the same payroll for both its theater staff and food service staff, and it does not separately keep their time and payroll records. The same general manager supervises all employees, although different locations might have assistant managers or team supervisors.

The FLSA exempts from its overtime requirements “any employee employed by an establishment which is a motion picture theater.” 29 U.S.C. § 213(b)(27). To qualify as a “motion picture theater,” the establishment must be “a commercially operated theater primarily engaged in the exhibition of motion pictures.” 29 C.F.R. § 779.384. The DOL has historically taken the position that theaters will meet the “primarily engaged” requirement when devote at least 50% of their available presentation time to presenting motion pictures. It is the “nature of the employer’s business, not the work performed by a particular employee,” that determines whether establishment-based exemptions apply.

As the DOL explains, business units on the same premises may constitute separate establishments—provided they are (1) physically separated, (2) “functionally operated as separate units having separate records, and separate bookkeeping,” and (3) have “no interchange of employees between the units.” Unless each of these three conditions is satisfied, the business units will be treated as a single establishment for purposes of the FLSA exemptions. Applying these principles, the DOL concluded that the theater and food service operations at issue operate as a single establishment for purposes of the motion picture theater exemption.

Opinion Letters Provide Safe Harbors!

DOL opinion letters don’t just make for interesting reading. Thanks to FLSA amendments in the Portal-to-Portal Act of 1947, opinion letters provide important defenses to employers facing wage and hour claims or investigations.

Under 29 U.S.C. § 259(a), “no employer shall be subject to any liability or punishment for or on account of the failure of the employer to pay minimum wages or overtime compensation under [FLSA] … if [it] pleads and proves that the act or omission complained of was in good faith in conformity with and in reliance on any written … interpretation [of the DOL] …. Such a defense, if established, shall be a bar to the action or proceeding, notwithstanding that after such act or omission, such … interpretation … is modified or rescinded or is determined by judicial authority to be invalid or of no legal effect.”

In addition, under 29 U.S.C. § 260, “[i]n any action … to recover unpaid minimum wages, unpaid overtime compensation, or liquidated damages, under the [FLSA], if the employer shows to the satisfaction of the court that the act or omission giving rise to such action was in good faith and that [it] had reasonable grounds for believing that his act or omission was not a violation of the [FLSA], the court may, in its sound discretion, award no liquidated damages or award any amount thereof not to exceed [the amount of the unpaid wages].”