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Department of Labor’s Recent Opinion Letters Addressing the FLSA’s Outside Sales Exemption

Introduction

The Fair Labor Standards Act (FLSA) is a federal law that establishes minimum wage, overtime, and other employment standards, affecting both private and public sectors of employment. There are many “exemptions” within the FLSA that permit employers to avoid paying their employees minimum wage and/or overtime, thus designating such employees as “exempt.” One such exemption is the “outside sales” exemption. On June 25, 2020, the United States Department of Labor (“DOL”) issued five (5) new opinion letters, two (2) of which addressed situations concerning the outside sales exemption. While DOL opinion letters are not binding law, they serve as a good resource when evaluating potential FLSA violations.

Outside Sales Exemption

The purpose behind exempting outside salesmen from the standard FLSA requirements is that their work is generally completed on their own time individually, with little oversight from their employers. To meet this exemption, employees must satisfy the following test: (1) the employee’s primary duties must be making sales, or obtaining orders or contracts for services or for the use of facilities for which the client or customer will pay some consideration; and (2) the employee must be “customarily and regularly” engaged away from the employer’s place or places of business. If an employee satisfies these two (2) conditions, then he or she may not be entitled to overtime pay. Recently, the DOL provided illustrations depicting two (2) types of salesmen who may meet the FLSA exemption requirements.

Situation 1: Salesmen who travel to different locations to sell products using their employer’s mobile assets

The DOL recently indicated that salesmen who travel to make sales while using their employer’s mobile assets, such as marketing vehicles, merchandise, displays, or portable technology, may qualify for the FLSA outside sales exemption. These exempt employees typically spend at least 80% of their time completing their own sales and being credited for those sales. The other 20% of their time, these salesmen are working on sales-related duties, such as event planning and inventory management. The employer’s mobile assets are merely marketing tools and equipment used to assist salesmen in their own sales. Therefore, because these employees are primarily engaged in their own sales, away from their employer’s place(s) of business, they may qualify for the outside sales exemption.

Situation 2: Salesmen who set up displays and perform demonstrations at various third-party retail locations

The DOL also recently indicated that salesmen who make sales inside retail locations not owned, operated, or controlled by their employer to sell the employer’s products, may qualify for the FLSA outside sales exemption. These exempt employees typically spend at least 80% of their time directly engaging in active sales to customers for the benefit of the salesman and his employer, not the third-party retailer hosting the event. Generally, the transactions for purchase are conducted directly though the salesman. If a customer buys something from a salesman through the third-party retailer, who then pays the salesman’s employer by separate agreement, then that salesman likely does not qualify for the FLSA exemption.

An example of this kind of sale may be a vendor inside a “big box” retailer store. For instance, a vendor may be set up inside a chain grocery store selling a food item, where the customer buys said item at checkout with the rest of his groceries and the grocery store then pays the salesman’s employer at a later time. Whereas, a salesman at a home and garden or trade show will likely make the transaction himself at his booth, thus satisfying the outsides sales exemption requirements. Therefore, depending on how the sale is conducted, these salesmen may be exempt from FLSA protections.

If you feel your rights under the Fair Labor Standards Act have been violated, or if you have any other questions regarding your employment rights, please contact the experienced Birmingham employment law attorneys at Wrady Michel & King. You can contact us either online or by calling us at (205) 319-9724. We are here to serve you.