An employee is exempt from overtime pay under Section 13(a)(1) of the FLSA if he is an outside sales person.
This means:
- His primary duty is making sales, or obtaining orders or contracts for services for the use of facilities for which a consideration will be paid by the client or customer; and
- He is customarily and regularly engaged away from the employer’s place or places of business.
Although the meaning of “making sales” may be intuitive to the layperson, its application under federal law is anything but clear. According to the U.S. Department of Labor, Wage and Hour Division Fact Sheet #17F (“Wage and Hour Fact Sheet #17F”), “making sales” includes any sale, exchange, contract to sell, consignment for sales, shipment for sale, or other disposition. It includes the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property. But this definition hardly ends the story.
What if an employee works away from the office promoting his employer’s product but never actually consummates a sale? Is he still considered an outside salesperson under federal law? The short answer is: Yes and No.
According to Wage and Hour Fact Sheet #17F, promotional work may or may not be exempt outside sales work, depending upon the circumstances under which it is performed. If the promotional work performed is incidental to and in conjunction with an employee’s own outside sales or solicitations, it is exempt work. If it is incidental to sales made, or to be made, by someone else, it is not exempt outside sales work.
For example, where an employee promotes a pharmaceutical product to a physician but can transfer the physician nothing more than free samples and cannot lawfully transfer ownership of any quantity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase, and cannot even obtain from the physician a binding commitment to prescribe it, a court could conclude that no sale was made. See In re Novartis Wage and Hour Litig., 2010 U.S. App. Lexis 13708, at*34 (2nd Cir. 2010).
Wirtz v. Keystone, 418 F.2d 249, 260-61 (5th Cir. 1969) also found no outside salesperson exemption because student salesmen only obtained lists of persons who seemed receptive to the idea of purchasing magazine subscriptions, paving the way for student managers to subsequently take orders—student salesmen solicited orders from potential customers but were prohibited from collecting money and were instructed to turn over all order forms to student managers who would then contact the prospect, explain the payment plan and execute the contract.
Gregory v. First Title of America, Inc., 555 F.3d 1300, 1305-06 (11th Cir. 2009), however, decided that whether an employee was ever involved in the actual sale of title insurance to realtors, brokers and lenders, and end users was immaterial if the employee’s promotional efforts were directed toward the consummation of her own sales as opposed to stimulating the sales of the company in general. In other words, such an employee is exempt and will be charged with making a sale in some sense if she obtained commitments to buy orders and was credited with the sale even though she never directly sold title insurance to anyone because she was not licensed to do so. See also Marketing Executive Is Exempt Outside Salesperson Under FLSA, Says Eleventh Circuit, posted by Richard Tuschman on Epstein, Becker and Green's Wage and Hour Defense Blog.
Similarly, Brody v. Astrazeneca, 2008 U.S. Dist. Lexis 107301, *26-27 (C.D. Cal. 2008) decided that if an employee’s promotional efforts are directed at persuading particular individuals to purchase a product rather than the general public and if he is compensated based on his success in securing purchases from individuals, he makes “sales” unlike promotional efforts directed to such tasks as setting up displays or posters, stocking store shelves, removing damaged or spoiled stock from shelves or rearranging merchandise, replenishing stock, and/or consulting with the store manager. See also Delgado v. Orth-McNeil, Inc., 2009 U.S. Dist. Lexis 28810, *12-13 (C.D. Cal. 2009).
Even though these cases provide some foundation for wading through the factors necessary to ascertain whether a sale for purposes of the outside salesperson exemption was made, they are no substitute to uniform case law in a single jurisdiction on the issue. In fact, at least one Ninth Circuit court, D’este v. Bayer Corp., 565 F.3d 1119, 1125 (9th Cir. 2009), pointing out the dearth of California case law on the topic, requested additional guidance from the California Supreme Court on the matter.
Notably, even though applying the factors discussed above may allow an employee to overcome the outside salesperson exemption through some characterization of the performance of his promotional work, the very same court highlighted that there is no guarantee that that employee’s promotional efforts, if significant to the company, will not fall within another overtime exemption, i.e., the administrative exemption. Id.
Thus, with little guidance in this area, it is unclear (even after a review of the cases cited above) whether an employee performing promotional work of such importance (in California in particular) can still be classified as a non-exempt employee. This begs the question: Will an inquiry of the “promotional work” an employee does to overcome one exemption risk another? Maybe so.
