There is an exemption under the Fair Labor Standards Act for individuals who earn at least 50% of their compensation from commission, earn at least time and one-half of the federal minimum wage for all hours worked and who work in a “retail” establishment.  Many states have adopted this exemption as well. The tricky part is often meeting the definition of a “retail” establishment.

In order to be retail, there must be a concept of “retailability” in the product or service provided, as that term is used in the regulations, opinion letters and cases. Secondly, the particular service or product must be “considered” as retail in the industry, which is the second component of the retail test.

“Retail” means selling to end of the line consumer, who is positioned at the end of the “stream of distribution.” It means selling products and services directly to consumers, meaning individuals. There are a number of cases standing for the proposition that a business selling its services to other businesses is not selling on a retail basis.

For example, a business that sold inventory services to other businesses was held not to be retail. A shopping service business that sells services to retail businesses and which serves their needs by investigating and reporting upon the efficiency and honesty of store sales people was not “retail.” A business that specializes in investigating the validity of workers’ compensation claims and who sold those services to insurance companies and law firms was held not to be retail.  The court noted that “these services clearly are not used by the general public.  This is a specialized service used only by certain members of the business community and therefore lacks the retail concept.”

In sum, where businesses are selling services to other businesses, even though their clients might be deemed “consumers,” those purchasing entities are not the ultimate end-of-the-line consumers envisioned by the federal regulations.

The other component is that the business must be considered retail within the “industry,” however the term "industry" is defined.  29 CFR 779.324.  Such a concept is “wider and greater than the views of an employer in a trade or business or an association of such employers.”  Thus, if an employer can secure opinions from recognized authority that sales of particular services were considered retail within the industry, an argument can be made.

The lesson is that an employer must accurately and definitively determine, before it exempts commission people from overtime, that the particular business of the employer is “retail.” Failure to make an accurate determination may come back later to haunt an employer in the form of a lawsuit, whether individual or class action.