“Outside Sales” Employees Frequently Misclassified as Exempt from Overtime Pay

January 23, 2018
Clock pointed at 2:25

Many overtime lawsuits involve employees who perform “outside sales,” i.e. whose job is to facilitate sales prospective clients and customers by making visits, attending events, and otherwise engaging in face-to-face sales activities. Positions like “Outside Sales Representative” are staffed in many large companies, such as Comcast, Sam’s Club, Xerox, and Manpower.

It is common for employees in this industry to work significant amounts of overtime in order to keep up with demanding sales quotas and frequent customer contact. While the Fair Labor Standards Act requires overtime pay calculated at 1.5 for hours worked over 40, the law has an exemption for Outside Sales Employees. The exemption is based on the understanding that an outside salesman’s extra compensation comes in the form of commissions, not overtime, and because most of the salesman’s work is performed away from the employer’s place of business, the employer often has no way of knowing how many hours an outside salesman works.

Like many exemptions to overtime pay, the outside sales exemption is often misconstrued by employers and relied on to withhold overtime pay from employees who are not truly engaged in outside sales.

The Outside Sales Exemption

Under federal law, an outside salesperson is exempt from overtime where the employee: (1) makes sales or “obtain[s] 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) is customarily and regularly engaged away from the employer’s place of business.

Additional factors that may be relevant include (1) whether the job was advertised as a sales position and the worker recruited based on sales experience; (2) whether the employee received specialized sales training; (3) whether compensation was based on commissions; (4) whether the employee independently solicits new business; and (5) the level of supervision.

Primary Duty

In order for an employee to be properly classified as an exempt outside sales employee, engaging in outside sales must be his or her “primary duty.” The DOL defines “primary duty” as meaning “the principal, main, major or most important duty that the employee performs.” Thus, employees whose outside sales activities comprise only a minor or infrequent part of their job should not be classified as exempt from overtime pay under the outside sales exemption.

For example, one of the DOL’s regulations regarding the outside sales exemption provides that the outside sales exemption would not apply to “a company representative who 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.”

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Sales v. Promotions

In assessing whether your primary duty is sales, it is important to distinguish between engaging in direct sales, and engaging in promotion work, such as advertising and holding events in hopes of obtaining a sale. DOL regulations provide that promotional work in this context is exempt only if it is “incidental to and in conjunction with an employee’s own outside sales.” However, “Promotional activities designed to stimulate sales that will be made by someone else are not exempt outside sales work.” Thus, if a significant amount of your sales-related activity in fact consists of promotional work enabling others to make sales, you may not fall within the outside sales exemption.

Away From the Employer’s Place of Business

The DOL defines “Away from the employer’s place of business” as making sales at the “customer’s place of business or, if selling door to door, at the customer’s home.” Further, “any fixed site, home or office, used by a salesperson as a headquarters . . . is considered one of the employer’s place of business, even though the employer is not in any formal sense the owner or tenant of the property.”

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, even if you work out of your home, instead of at your employer’s office, you do not qualify as outside sales exempt unless you at least occasionally meet and visits with potential clients and customers.

Example Cases

  • Case brought on behalf of Territory Managers and Retail Store Representatives employed by Kellogg Company who claimed they were misclassified as exempt under the outside sales exemption. Kellogg recently agreed to settle the case for $16,750,000.
  • In 2017, a large grill manufacturer agreed to a $2.85 million settlement in a case brought on behalf of Direct Sales Demonstrators who alleged they were misclassified as exempt under the outside sales exempt.
  • In 2013, Frito-Lay agreed pay $1.6 million to settle wage-and-hour claims filed on behalf of current and former employees who deliver its products to stores and arrange the store displays.

If you’re wondering “Am I properly classified as outside sales?” or if you worked or work in a position that was classified as outside sales exempt you should call Brown, LLC to see if you may be entitled to overtime pay.