On June 25, 2020, the U.S. Department of Labor (“DOL”) issued five new opinion letters on issues ranging from the outside sales exemption under the Fair Labor Standards Act (“FLSA”) to whether emergency-management coordinators employed by a county government qualify for the learned professional or administrative exemption under 29 U.S.C. § 213(a)(1).
The opinion letter covering the outside sales exemption addresses the question of whether certain salespeople traveling to work at various retail operations (e.g., home and garden shows, trade shows, state and county fairs, and big-box stores) are exempt from overtime pay under the FLSA. The opinion letter concludes: (i) the traveling salespeople at locations other than big-box stores qualify for the outside sales exemption only if their primary duty is performing sales work directed toward consummating their own sales; and (ii) the traveling salespeople at big-box stores (i.e., those who make sales at or through third-party retailers) may not qualify for the outside sales exemption, unless the employees obtain a commitment to buy from the customers and are given credit for the sales that were consummated specifically through their efforts.
Factual Background
The salespeople at issue travel to various retail operations such as home and garden shows, trade shows, state and county fairs, and big-box stores, where they set up displays exhibiting and demonstrating products they are selling. These sales shows typically last 10 days, but could range from 1 to 21 days. On average, a given retail location will be used for the sales demonstrations no more than 30 total days a year.
During the shows, the salespeople spend most of their time pitching products to potential customers. The salespeople at issue spend more than 80 percent of their workweek directly engaging in active sales pitches to customers. The salespersons’ other activities are related to the sales activities, including but not limited to buying demonstration materials and participating in sales-related meetings.
These persons are recruited and hired based on sales experience, trained in sales, given sales goals and commissions, and are eligible for bonuses based on purchases by customers during their assigned shows.
At big-box stores, customers generally make purchases through the retail operations where the shows are conducted, under an arrangement whereby the retailer passes to the employer an agreed-upon portion of all sales of the employer’s products. However, there is no third party retailer involved at the other types of locations (i.e., home and garden shows, trade shows, and state and county fairs).
Analysis
The FLSA exempts from overtime and minimum wage requirements employees employed “in the capacity of [an] outside salesman.” 29 U.S.C. § 213(a)(1). There are two requirements to meet the outside sales exemption: (1) the employee’s primary duty must be “making sales” to, or “obtaining orders or contracts for services” from, customers (29 C.F.R. §§ 541.500(a), 541.501); and (2) the employee must be “customarily and regularly engaged” in performing that duty “away from the employer’s place or places of business” (29 C.F.R. § 541.500(a)).
The DOL first analyzed whether these salespersons’ principal activities involved sales or activities related to their own sales. Noting that these individuals spend over 80 percent of their workweek directly engaging in active sales pitches to customers, the DOL concluded that all their other activities—from completing paperwork to managing materials for their demonstration to attending sales-related meetings—related to sales as well. Thus, their primary duty was, in fact, “making outside sales.”
However, the DOL added that, when salespersons work at big-box retail stores, customers often buy products through the retailer—not the salesperson—and salespersons are thus engaged in “promotional” work, but not “making sales.” Thus, in the context of sales in a big-box retail store, one must consider the additional question of whether the individual is, in some objective sense, engaged in making sales for himself, as opposed to the company. To make sales for oneself (as opposed to the company) within the meaning of the outside sales exemption, the salesperson “must obtain a commitment to buy from the customer and be credited with the sale to be eligible.” Because specific facts on this question were not provided (i.e., whether these individuals were individually credited for sales in big-box stores), the DOL did not reach a conclusion on it. However, the DOL did note that performing some promotional tasks at big-box sites does not necessarily render the whole job non-exempt.
The DOL next analyzed the question of whether these salespersons were “customarily and regularly engaged…away from the employer’s place of business” when they traveled to make sales at trade shows, home and garden shows, state and county fairs, and big-box stores. The DOL discussed some legal precedent on the issue and, based thereon, concluded “one could easily recognize that those locations did not constitute the employer’s place of business.” None of these places could be said to be “fixed sites” for or the “headquarters” of their work.
Takeaway
Salespersons making sales away from his or her employer’s place of business are likely subject to the outside sales exemption; however, this is not the end of the story. Consideration of the location and other circumstances surrounding the sale (e.g., whether a third-party retailer is involved, how a salesperson is or is not credited or compensated for sales at such location, etc.) may change this conclusion. It is thus critical to hire an attorney to carefully review your situation to understand in detail how and why an exemption, like the outside sales exemption, may or may not apply.
