New DOL Ruling May Rest On Historical Precedent

The DOL overtime rule was signed in May. Photo: Department of Labor

By the end of this year, travel agency owners likely will find themselves compelled to pay overtime to more of their employees, as a Department of Labor (DOL) rule more than doubles the income threshold that triggers overtime pay.

Beginning Dec. 1, anyone earning less than $47,476 per year is subject to overtime pay, up from the $23,660 threshold that has been in place since 2004. (ASTA estimates that the typical travel-agency employee earns approximately $38,000 annually.)

But what many agents don’t know is that almost 20 years ago a Florida U.S. district court ruled in favor of an Orlando-based, cruise-only travel agency, exempting it from the DOL’s overtime pay rules. The agency, Cruises Only, proved that it operated a valid “retail concept,” and thus shouldn’t be included on a DOL “blacklist” of businesses that must pay overtime.

The blacklist, found in the Fair Labor Standards Act (FLSA) employment code, was compiled by DOL over decades and hasn’t been formally reviewed to see if business categories like travel agencies should be removed from it. The list also includes auction houses, detective agencies, doctors’ offices, gambling establishments, insurance brokers and agents, landscaping and plumbing contractors and tree removal firms.

“The FLSA was passed to stop sweat-shop practices,” said noted travel industry attorney and former ASTA counsel Paul Ruden. Many elements of the code are not relevant for today’s economy, he said, given the changes in industries and how people work and are paid. “It’s a product of a bygone era, and it’s time to say goodbye to it for good.”

But while Ruden, the American Society of Travel Agents, and others believe that the Cruises Only ruling provides a logical case for permanently exempting agencies from the overtime rule, the slow-churning legislative process might leave agencies on the blacklist indefinitely.

A landmark case time forgot

DOL filed its case against Cruises Only in November of 1996, claiming the cruise specialty agency failed to comply with section 29 U.S.C. § 207(a) of the FLSA, requiring employers to compensate salespeople at a rate of 1.5 times their regular rate of pay for all hours worked over 40 hours per week. Labor sought to recover overtime for the salespeople for the period from May 25, 1991, through the date of the filing, and to prevent Cruises Only from violating the statute further.

During the trial, Cruises Only, then owned by Judy and Wayne Heller, proved that it met all of these rules under the FLSA code regulating employee compensation.

But there was one more important rule on which DOL hung its case. It claimed that Cruises Only wasn’t a “retail or service establishment” as described under the statute. Among many things, the FLSA definition of “retail or service establishment” says that 75% of a business’ sales must not be for resale, that consumers purchase the product or service regularly, and that an agency be at the end of the distribution chain.

The court found that Cruises Only “fits within all of the regulations for a service establishment under the Act and possesses a retail concept,” adding that “the regulations of the [DOL] Secretary” excluding a travel agency “appear to be arbitrary and without any rational basis explained in the regulations.”

A ruling with no teeth

This ruling has never been challenged (indeed, DOL has published at least one letter since 1997 affirming it), and so travel agencies remain on the blacklist and will have to comply with the higher income threshold this December.

“The legal impact of that ruling is limited,” said Ruden, ASTA’s former counsel and a TMR contributor. “It’s not generally binding on anybody, because it was a single district court ruling, and other courts have no obligation to follow it.”

Additionally, the ruling doesn’t negate the DOL’s rule. “The Department of Labor needs to be petitioned to even consider changing it,” he said.

ASTA said it will be filing such a petition soon, but for now, it is helping educate member agencies to assist them in being compliant by Dec. 1. ASTA hosted an educational webinar on July 27, and will be posting educational materials on its website through the fall.

“At the end of the day, this is not just a legal argument,” Ruden cautioned. “As with all significant changes in government, there will be significant obstacles. But if you do not try, you do not get there.”

Cruises Only became part of a large publicly-traded company in 1997 and eventually was sold to U.K.-based Airtours in 2000. Wayne Heller passed away in 2015. He is survived by his wife Judy, who, with her husband, was inducted into the CLIA Hall of Fame last year.