Recent court cases highlight two new flashpoints in employment law – classification of a business under the Massachusetts blue laws and the scope of the Federal Arbitration Act.

The first case involves determining whether workers are entitled to Sunday premium pay while working at a business that is both a retail store and a provider of consumer services.

The case began when two employees of a spa/massage business filed a lawsuit claiming that the business should be considered a “store or shop” engaged in the “retail sale of personal health and sanitary supplies” because the Massachusetts blue laws provide that a store or shop is only permitted to remain open on Sundays if it pays its employees premium pay.

By way of background, until 2019 premium pays for work on Sunday and certain holidays was set by state law at 1.5 times the employee’s regular wage. However, as a component of legislation passed in 2018, premium pay is being phased out and will disappear as of January 1, 2023.  The elimination of premium pay coincides with the final step of the minimum wage increase to $15/hour.

The crux of this case turns on the true nature of the business. More businesses today offer their customers merchandise ancillary to their principal service activity, which in this case is the “cutting and styling of hair, manicuring, and the furnishing of related cosmetological and beauty services” and “the performance of massage therapy services.”  This raises questions about whether the business is eligible for one of the statutory exemptions or if its retail aspect makes it subject to Sunday opening blue laws and the premium-pay requirement.

The judge found that the day spa/massage business “unambiguously fits the exemptions (54) and (54 ½)” while clarifying that as a result of the exemptions “[t]he Legislature’s intent was for those businesses to not pay the Sunday premium.”

On the other hand, the case involved the more complex issue of how a business should be classified when it meets the definition of retailer under the law but also provides a service that the legislature specifically exempted from blue laws premium pay requirements.  In making her decision, the judge determined that the spa operated to provide a service, and any goods it sold were ancillary to those services.

The judge noted that in 2022, it is increasingly common for businesses to sell retail goods for additional revenue rather than solely serving the original intent of the business. In this case, the retail side of the business apparently generated approximately 20 percent of its revenue in the two or three years leading up to the lawsuit. But the court noted that almost all retail revenue came from purchases by customers there for spa or massage services and not consumers entering the business just to purchase items.

Additionally, the judge recognized that no authority exists to require a certain percentage of retail goods to be sold for an exempted business to be deemed a store or shop or retail establishment.

The judge concluded that “if the Legislature meant to require Sunday premium pay for all retail activity permitted on Sunday, it would have attached the requirement expressly to all clauses of Chapter 136, §6,” which the Legislature did not do.

The case bears watching. Lawyers for the employees have already announced their intention to appeal the trial court ruling based on the theory that if a business (i.e., a store or shop) operates on Sunday, and that business has some retail component, it must pay employees premium pay as required under the law. As noted above, however, the clock is counting down on the premium pay issue, so it is unlikely to have a lasting effect.

Left unanswered is the question of what happens if a business meets one of the statutory exemptions but has a significant amount of foot traffic coming into the business specifically to buy items that are sold independently of the actual services being provided.

An example might be a rural Inn with a small shop in its lobby.  Suppose Oprah listed this inn’s pies among her “Favorite Things,” leading customers to flock from all over just for the pie. The inn reaches a point where it is selling more than 150 pies each day, despite it being a small establishment with only 25 guest rooms.

Does this change in revenue sources transform the inn into a retail establishment? And how would a judge parse out the issue to determine the business of the business for purposes of the Blue Laws?

While this may seem like conjecture given the disappearance of the premium pay law, don’t forget that the wage and hour laws include a three-year statute of limitations. That means that if the appeals court rules that they are retail businesses and the premium pay law applies, lawsuits may continue to come forward from employees claiming they were not paid back when the premium pay was 1.2 or 1.3 times an employee’s regular rate of pay.

Federal Arbitration Act

Multiple lawsuits have been filed seeking to resolve the issue of whether an employee’s job was involved in interstate transportation and therefore subject to the Federal Arbitration Act (FAA).

Many of the lawsuits were brought by employers to demonstrate that the employees were covered by the FAA, thus forcing employees to pursue legal challenges through an arbitration system and shielding the employer from being brought into the court system.

Lawsuits brought by employees have focused on whether the FAA’s language excluding from its reach any “[c]ontract of employment of seamen and railroad employees or any other class of workers engaged in foreign or interstate commerce” applies to them, thereby enabling them to avoid arbitration and seek legal redress in the courts.

A recent court decision on the matter comes in the midst of a national debate on the fairness of arbitration in employment settings and on the heels of recent action by Congress to create the Forced Arbitration Injustice Repeal Act that prevents employers from requiring arbitration for sexual harassment cases.

The court case arose when an employee who worked as a merchandiser filed a lawsuit alleging violations of the Fair Labor Standards Act (FLSA) and the Massachusetts wage and hour law. In response to the lawsuit, the court had to consider whether the employee’s position was covered by the exemption to the FAA.

At the same time the employee sought to make her claim, a class action was filed on behalf of other similarly situated employees at the same company. It is worth noting that limiting class-action lawsuits is one of the primary reasons for employers adopting mandatory arbitration clauses with their employees.

As a merchandiser, the employee was responsible for traveling between weekly assigned job sites to audit and stock products, build product displays, update product pricing and signage, and stage point-of-purchase (POP) materials. Performing her assigned duties could take her to clients in four different states across her territory including Massachusetts, Connecticut, New Jersey, and New York. Shortly after quitting her job, the employee filed a lawsuit.

The employee argued that she was the functional equivalent of a last-mile driver engaged in interstate transportation, even though her employer had labeled her a “retail worker.” In its opinion, the court made clear that job titles are irrelevant, and it is job duties that matter. The judge agreed with the employee in holding that the employee’s position was so closely related to interstate transportation as to be practically a part of it.

While traveling from client to client, employees were not paid for transportation time during the workday and only paid for the time on-site at a particular client. Employees were also not paid for any time they spent at home staging the point-of-purchase materials, a factor that appears to have influenced the final decision. The judge determined that the POP materials were shipped to the merchandiser’s home and staged at the employee’s house before the merchandiser brought them to the end-user location.

In response to the lawsuit, the employer sought either arbitration per the arbitration agreement it had with the employees or an outright dismissal of the case. The judge refused to dismiss the case but did not address the issue of compulsory arbitration, leaving that question for the future.

While that gives round one to the employee, there is no final answer yet as the employer has announced its intention to appeal to the Federal Appeals Court.

Final thoughts

Both cases hold the potential to impact the operations of certain employers going forward. AIM will continue to monitor these cases and report any new developments as they arise.

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