Outside Sales Exemption

Outside Sales Exemption

Dolley Law, LLC represent clients with claims or questions regarding overtime pay requirements for persons engaged in outside sales. The Fair Labor Standards Act (FLSA) contains exemptions to its overtime pay requirements. One of these exemptions applies to workers “employed…in the capacity of outside salesman.” 29 U.S.C. § 213(a)(1). Our attorneys know the relevant regulations and considerations that impact a determination of whether an individual qualifies for the outside sales exemption. With this knowledge, we can help advise you regarding your legal rights and obligations.

What is an “outside salesman”?

Congress did not define what “outside salesman” means in the FLSA. However, Congress explicitly directed the Department of Labor to elaborate on the meaning of this term. See 29 U.S.C. § 213(a)(1). And the Department of Labor has done so. See 29 C.F.R. § 541.500. Under FLSA regulation, the term “employee employed in the capacity of outside salesman” means any employee: “(1) whose primary duty is (i) making sales within the meaning of section 3(k) of the Act, or (ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and (2) who is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.” Id.

Section 3(k) of the FLSA defines “sale” or “sell” as including “any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” 29 U.S.C. § 203(k). The United States Supreme Court reads this part of the definition of “outside salesman” to mean “an outside salesman is any employee whose primary duty is making any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” Christopher v. SmithKline Beecham Corp., 567 U.S. 142, 148 (2012).

FLSA regulations further elaborate on the nature and scope of the exemption. Unlike some other exemptions, the “outside sales” exemption does not require a certain salary threshold for it to apply. See 29 C.F.R. § 541.500(c). The regulations also comment on what it means to make sales or obtain orders (i.e., 29 C.F.R. § 541.501) and what it means to work “away from the employer’s place or places of business” (i.e., 29 C.F.R. § 541.502).

With regard to the latter issue, the DOL has clarified, in relevant part: “[t]he outside sales employee is an employee who makes sales at the customer’s place of business or, if selling door-to-door, at the customer’s home. Outside sales does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls. Thus, any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business, even though the employer is not in any formal sense the owner or tenant of the property.” 29 C.F.R. § 541.502. Nonetheless, the regulation makes clear that displaying samples in a hotel room as part of sales travel, or displaying products at a trade show, does not turn such areas into the employer’s place of business for purposes of the exemption: “if selling actually occurs, rather than just sales promotion, trade shows of short duration (i.e., one or two weeks) should not be considered as the employer’s place of business.” Id.

What is the difference between sales and sales promotion?

DOL regulations distinguish between sales, on the one hand, and sales promotion, on the other, in terms of the “outside sales” exemption. In particular, the regulations provide: “[p]romotion work is one type of activity often performed by persons who make sales, which may or may not be exempt outside sales work, depending upon the circumstances under which it is performed. Promotional work that is actually performed incidental to and in conjunction with an employee’s own outside sales or solicitations is exempt work. On the other hand, promotional work that is incidental to sales made, or to be made, by someone else is not exempt outside sales work.” 29 C.F.R. § 541.503(a).

To elaborate on this distinction, the DOL regulations compare a manufacturer’s representative with a company representative. In the former case, the manufacturer’s representative “may perform various types of promotional activities such as putting up displays and posters, removing damaged or spoiled stock from the merchant’s shelves or rearranging the merchandise. Such an employee can be considered an exempt outside sales employee if the employee’s primary duty is making sales or contracts. Promotion activities directed toward consummation of the employee’s own sales are exempt. Promotional activities designed to stimulate sales that will be made by someone else are not exempt outside sales work.” 29 C.F.R. § 541.503(b).

In the latter case, however, the company representative “visits chain stores, arranges the merchandise on shelves, replenishes stock by replacing old with new merchandise, sets up displays and consults with the store manager when inventory runs low, but does not obtain a commitment for additional purchases. The arrangement on the shelves or the replenishing of stock is not exempt work unless it is incidental to and in conjunction with the employee’s own outside sales. Because the employee in this instance does not consummate the sale nor direct efforts toward the consummation of a sale, the work is not exempt outside sales work.” 29 C.F.R. § 541.503)(c).

The Supreme Court has also weighed in on what it means to “make sales” as opposed to promoting sales. In Christopher, the Supreme Court observed: “[a]lthough the DOL has rejected proposals to eliminate or dilute the requirement that outside salesmen make their own sales, the Department has stressed that this requirement is met whenever an employee ‘in some sense make[s] a sale.’ And the DOL has made it clear that ‘[e]xempt status should not depend’ on technicalities, such as ‘whether it is the sales employee or the customer who types the order into a computer system and hits the return button,’ or whether ‘the order is filled by [a] jobber rather than directly by [the employee’s] own employer.’” 567 U.S. at 149 (internal citations omitted). In that case, a divided Supreme Court rejected the Department of Labor’s contention that, for an employee to make a sale, the employee must “actually transfer[] title to the property at issue.” Id. at 159-60.

Instead, the Supreme Court majority in Christopher acknowledged the “unique regulatory environment” of pharmaceutical sales and emphasized that pharmaceutical sales representatives “bear all of the external indicia of salesmen” to conclude that “[o]btaining a nonbinding commitment from a physician to prescribe one of [the employer’s] drugs” constitutes exempt “outside sales” work. Id. at 165-66. What is clear from Christopher is that the details of and context surrounding an employee’s work and an employer’s business can make a difference in how a court decides the applicability of the “outside sales” exemption.

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If you have a question or concern regarding the “outside salesman” exemption under the FLSA, contact Dolley Law, LLC by phone at (314) 645-4100 or by email at kevin@dolleylaw.com.

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