The Federal Department of Labor Issued Six New Opinion Letters (Part 2 of a 2-Part Series)

By XobeeAdmin on September 24, 2018 in Uncategorized
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Voluntary Participation in Wellness Activities Is Non-compensable Time

FLSA2018-20 discusses whether the FLSA requires compensation for the time an employee spends voluntarily participating in certain wellness activities, biometric screenings, and benefits fairs.

 

Background

 

An employer allows its employees to participate in voluntary “biometric screening” both during and outside of regular work hours. The screening tests, among other things, an employee’s cholesterol levels, blood pressure, and nicotine usage. An employee’s participation in the screening may decrease his or her health insurance deductibles. The employer does not require the screening, and the screening is not related to the employee’s job. It is purely the employee’s choice whether to participate.

 

An employee may also participate in the following “wellness activities” to potentially decrease his or her monthly insurance premiums:

 

  1. Attending an in-person health education class and lecture (e.g., nutrition or diabetes management);
  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 (e.g., going to personal gym, exercising outdoors, participating in a Fitbit challenge).

 

Similar to the biometric screening, these wellness activities are not mandatory and do not directly relate to the employee’s job.

 

Finally, an employee may also choose to attend a benefits fair to learn about topics such as financial planning, employer-provided benefits, or college attendance opportunities. These fairs are not part of new employee orientation, are open to all employees, are not related to the employees’ job duties, and are entirely optional.

 

DOL Opinion

 

The employer receives no direct financial benefit as a result of employee participation in any of the above-described activities.

 

The Wage and Hour Division (WHD) opined that an employee’s voluntary participation in biometric screenings, wellness activities, and benefits fairs as described predominantly benefits the employee. The activities provide direct financial benefit to only the employee, and they also help the employee make more informed decisions about matters unrelated to his or her job. Participation is wholly optional for the employee; the employer never requires it. The employer likewise does not require the employee to perform any job-related duties while he or she participates in the activities. Because the activities predominantly benefit the employee, they do not constitute compensable worktime under the FLSA.

 

Additionally, the activities described also constitute non-compensable “off-duty” time under 29 C.F.R. § 785.16. When the employer allows an employee to voluntarily participate in the above-described activities, the employer is relieving the employee of all job duties. It is unclear if the employer restricts the amount of time an employee may participate in such activities; therefore, the WHD assumed that the time allowed is long enough for the employee to use it effectively for his or her own purposes. Under such circumstances (as described in the opinion letter), the time spent participating in such activities is non-compensable “off-duty” time under 29 C.F.R. § 785.16.

 

In sum, the FLSA does not require compensation for the time employees choose to spend engaged in the activities described in the letter. The conclusion is the same regardless of whether the activities occur on-site or during regular working hours.

 

Business-to-Business Technology Platform Sales Can Be Considered “Retail” for Purposes of Exemption

 

FLSA2018-21 focuses on whether the FLSA’s “retail or service establishment” exemption applies to sales representatives at an employer’s business.

 

Background

 

The employer described in the opinion letter “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.” The employer operates in a highly-competitive industry and employs sales representatives to promote its platform to merchant-customers. The employer’s technology payment platform “cannot be resold, as the platform is designed for each specific merchant,” and the sale of this platform constitutes 100 percent of the employer’s sales.

 

The letter focuses primarily on the first requirement under Section 7(i), that is, whether the employer qualifies as a “retail or service establishment.” To qualify as a “retail or service establishment,”

 

  1. The employer must “engage in the making of sales of goods or services”;
  2. “[Seventy-five] percent of its sales of goods or services, or of both, must be recognized as retail in the particular industry”; and,
  3. “[N]ot over 25 percent of its sales of goods or services, or of both, may be sales for resale.” 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).

 

DOL Opinion

 

The WHD found that the employer, as described in the letter, satisfied these criteria, in part because the employer sells its platform to a variety of purchasers, the platform serves their everyday needs, the platform is not distributed further once sold, and the employer does not sell large quantities of the platform to any single customer. The fact that the employer sells its platform to commercial entities does not change this conclusion; indeed, a business may qualify for the exemption even if it sells “certain products almost never purchased for family or noncommercial use.” 29 C.F.R. § 779.318(b).

 

Courts have confirmed that businesses may qualify as retail or service establishments when their customers and end-users, like those of the employer described in the opinion letter, are predominantly commercial entities. For example:

 

  • A window-cleaning business that provided services to various businesses and entities constituted a retail or service establishment for purposes of the Section 7(i) exemption.
  • A business that sold cleaning supplies and related products to other businesses qualified as a retail or service establishment for purposes of the Section 7(i) exemption.
  • A business that provided computer training to commercial businesses constituted a retail or service establishment for purposes of the Section 7(i) exemption.

 

Notably, courts have also confirmed that “case law does not require a physical location accessed by the public” for the sales to be made to the general public. The employer may still qualify for the retail or services exemption even if it sells its platform primarily online.

 

As to the second requirement, the information provided in the opinion letter indicates that the employer’s sales of its platform are retail sales, not wholesale sales. The employer does not sell large quantities of the platform to individual purchasers. Further, a business does not engage in wholesale merely because purchasers of its product use the product, in turn, to serve their own customers and may even raise prices to recover the cost of the purchase. However, it should be remembered that although WHD has “considerable discretion” when making determinations regarding whether sales are recognized as retail in a particular industry, the “responsibility for making final decisions. . . rests with the courts.” 29 C.F.R. § 779.325.

 

The WHD also determined that the employer satisfies the third requirement, because its payment platform is not resold. The opinion notes: “The common meaning of ‘resale’ is the act of ‘selling again.’ A sale is made for resale where the seller knows or has reasonable cause to believe that the goods or services will be resold.” 29 C.F.R. § 779.331. In this instance, the employer’s platforms “cannot be resold” because they are “designed for each specific merchant.”

 

Given these considerations and the specific facts provided in the opinion letter, the WHD concluded that the employer constitutes a retail or service establishment under 29 U.S.C. § 207(i). Consequently, the FLSA’s retail or service establishment exemption will apply to any of the employer’s employees whose regular rate of pay exceeds one-and-one-half times the applicable minimum wage for workweeks in which they work overtime, and whose commissions constitute more than half of their earnings.

 

Graders for Private Nonprofits May Be Classified as Volunteers Rather than Employees Going Forward

 

FLSA2018-22 concerns the applicability of the FLSA to “member examination graders” (Graders) who “travel either domestically or from abroad to the United States once a year for a one- to two-week period to grade a global credentialing examination” for a nonprofit organization. Specifically, the nonprofit asks whether it may treat the Graders “as volunteers instead of. . . short-term employees” if the Graders do not receive a fee for their services going forward.

 

Background

 

The employer discussed in this opinion letter is a nonprofit organization that administers professional examinations necessary to obtain professional designations (credentials). Each year, the nonprofit selects approximately 650 credential-holders who are members of the organization to serve as Graders for one or two weeks. Graders are motivated to serve due to the “professional achievement of being selected for this role,” as well as the opportunities to “[promote] the highest standards of ethics, education, and professional excellence,” to “[gain] the personal and professional” benefits of being a Grader, to “give back to the profession,” and to “give back” to the nonprofit. In the most recent survey that the nonprofit conducted, Graders most commonly cited the last two reasons—giving back to the profession and giving back to the nonprofit—as their motivations for serving as Graders. The Graders “tend to be the most successful and highly compensated individuals in their professions” and are often “highly compensated executives of multi-national firms” who take “a week or more of their personal vacation, or other leave time” to serve as Graders.

 

The nonprofit pays for the Graders’ transportation, accommodations, and meals while they serve as Graders. The nonprofit has previously also provided Graders a flat fee for their services, but plans to stop paying this fee and classify the Graders as volunteers going forward.

 

DOL Opinion

 

It appeared that the majority of the nonprofit’s members who previously received a flat fee to serve as Graders would continue to serve as Graders for the various service-oriented reasons outlined above, including giving back to the profession and others. In addition, Graders are typically highly compensated executives who continue to receive their regular salaries from their primary employers. They travel from their home locations to serve as Graders, and do so only once per year for no more than two weeks. These and other factors outlined above indicate that Graders offer their services freely and without pressure or coercion. For purposes of this discussion, the WHD assumed that the nonprofit correctly characterized the Graders’ motivations.

 

As the nonprofit will not pay any fees to the Graders going forward, the Graders would perform their services solely for the service-oriented reasons identified by the nonprofit, and without contemplation of compensation. The nonprofit could continue to pay for Graders’ travel, lodging, meals, and other expenses incidental to volunteering without negating their volunteer status.

 

In sum, based on the facts provided, it is the WHD’s opinion that the nonprofit could properly classify Graders as volunteers under the FLSA going forward.

 

Motion Picture Theater Exemption Applies to Food Service Staff Employed at Motion Picture Theaters

 

FLSA2018-23 concerns the motion picture theater exemption in Section 13(b)(27) of the FLSA. The FLSA exempts from its overtime requirements “any employee employed by an establishment which is a motion picture theater.” Although the FLSA does not expressly define what constitutes “a motion picture theater,” regulations specify that the establishment must be “a commercially operated theater primarily engaged in the exhibition of motion pictures.” 29 C.F.R. § 779.384. The regulation does not expressly define the meaning of “primarily engaged” (other than specifying that it does not depend on the establishment’s annual sales). The WHD has stated, however, that establishments meet this requirement when they devote at least fifty percent (50%) of their available presentation time to presenting motion pictures.

 

Therefore, the opinion letter discusses whether this exemption applies to the food service operations of motion picture theaters. The WHD opined that this exemption applies to the businesses described in the letter because each of them is a single establishment primarily engaged in the business of showing motion pictures.

 

Background

 

In the request for an opinion letter and in follow-up communications with WHD staff, the WHD learned that the employer owns motion picture theaters that provide in-theater dining. Some of the employer’s locations additionally have a full-service restaurant on-site. Movies are shown at all times during the hours of operations at each location. In almost all instances, restaurant patrons must purchase a movie ticket to eat at the on-site restaurant. The food service operations are not separately incorporated and do not operate in any way as separate entities. They do not, for example, 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. The primary revenue source for each of the employer’s establishments is the sale of movie tickets.

 

At each location, staff use a single kitchen to prepare food for both the in-theater and full-service dining (if any). 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. The employer uses the same payroll for both its theater staff and food service staff, and it does not separately keep their time and payroll records. Additionally, the same general manager supervises all employees (although different locations might have assistant managers or team supervisors).

 

DOL Opinion

 

The information provided establishes that the employer’s food services operations are functionally integrated with its theater operations. Indeed, they are incorporated as a single unit, file taxes and maintain business records as a single unit, order goods and pay invoices as a single unit, and use the same bank accounts to pay business expenses. They provide services to the public under a single business name, and their employees function as employees of a single unit. This lack of functional separation shows that the theater and food service operations operate as a single establishment under 29 C.F.R. § 779.305.

 

In addition, the same employees perform work for both parts of the business. The same employees that provide food services, for example, also work as ushers and cashiers. Thus, even if the theaters and food service operations were not functionally integrated, they would still constitute a single establishment under 29 C.F.R. § 779.305 because of the “interchange of employees between the units.”

 

Further, each of the employer’s locations is primarily engaged in showing motion pictures. Each location shows motion pictures consistently throughout its hours of operation—well in excess of the fifty percent (50%) threshold necessary to qualify as a “motion picture theater” under Section 13(b)(27). Given the above considerations, the motion picture theater exemption in Section 13(b)(27) applies to the employer’s establishments as they currently operate.

 

Recommendations

 

  • Update employee policies. Employers should review their policies and procedures to determine whether existing policies need to be modified in light of the new DOL Opinion Letters.
  • Consider State Law. While the DOL Opinion Letters are very helpful guidance on the issues addresses, keep in mind they are not binding law.  On FLSA issues, courts typically give the DOL Opinion Letters serious consideration, but a court may disagree and take a different position.  Further, all employers need to consider applicable state law on these issues.  The DOL Opinion Letters only address federal law.  Some state laws may differ from federal law.

To read Part 1 of this series, click here.