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Outside Sales Exemption Gets Three DOL Opinion Letter Reviews

July 6, 2020

By Michael Burns courtesy of SBAM Approved Partner ASE

In the world of Wage and Hour law exemption determination there is the Fair Labor Standards Act (FLSA) that is the law on what jobs are “exempt” from most recordkeeping and payment of overtime for work over 40 hours in a week.

There are regulations that seek to further clarify and explain what the exemptions are and how to determine them. And then there are what are called Opinion Letters. Opinion Letters are an official Wage and Hour Division response to how, in the case of FLSA law, a law applies in a specific set of circumstances as outlined by the person or entity requesting the opinion. An Opinion Letter can be relied upon by the requesting party for that set of facts (circumstances) alone, and federal courts will generally give the Opinion Letter weight should the issue at hand be taken to court.

As most human resource professionals should know, there are several major exempt classifications as well as a couple dozen minor or statutory exemptions specific to industries or jobs. The major FLSA exemptions are Executive, Administrative, Professional, Computer Professional, and Outside Sales positions.

Last week the Wage and Hour Division (WHD) of the U.S. Department of Labor (DOL) issued five new Opinion Letters – three of which apply to the Outside Sales exemption.

FLSA 2020-6 – This Opinion Letter addressed the fairly straight forward situation of whether salespeople who travel to different locations using their employer’s “mobile assets” qualify for the Outside Sales exemption under 13(a)(1) of the FLSA.

It was found that the employees did seek to make sales while travelling away from the employer’s place of business. The specific concern brought up by the company was the use of its trucks as well as its electronic media to attract customers and facilitate sales. Traditionally the Outside Sales position worked individually and without restrictions on their time and worked on commission or bonus for their income on sales. The Opinion Letter found nothing inconsistent with the traditional outside sales duties and responsibilities and the employer’s position’s use of company trucks and electronic media to make the sales. Further it found that although the worker travelled in a company truck locally, this was not inconsistent with the Outside Sales exemption test that the job customarily and regularly be engaged away from the employer’s place of business. Specifically, the Opinion Letter held that the company trucks are not considered the employer’s “place of business.”

Interestingly the Opinion Letter cited the fairly recent Encino Motors, LLC v Navarro SCOTUS decision holding that the Wage and Hour Division (WHD) should read statutory text with a “fair (rather than narrow) interpretation” to reach their determinations.

FLSA 2020-8 – This Opinion Letter looked at whether salespeople who set up displays and performed demonstrations at various retail locations not owned, operated, or controlled by their employer in order to sell their employer’s product could be classified as exempt under Section 13(a)(1) of the FLSA. In the case at hand the employees worked garden shows, trade shows, and state and county fairs where they sold product directly to their customers and were paid a commission for the sale. They met both the travel and direct selling requirements of the exempt classification. The WHD distinguished these sales from those derived from exhibitors that travel to stores to do demonstrations, but the store makes the sales not the person doing the sales demonstration.  

However, in this Opinion Letter’s facts the sales employees engaged in sales activities in both scenarios.  WHD opined that if the employer  could “demonstrate objectively that the employee, in some sense has made the sales and could also show that though the store made the sale and the salesperson was credited with the sale by way of obtaining a commitment from the customer, they could be considered selling the product even though a third party retailer got the direct sale. The WHD opined that the exemption could be applied if the employee did not spend a majority of their time doing demonstrations at stores where the retailer made the sale and not the company salesperson. If so, they could also meet that requirement of the Outside Sales exemption test.

This opinion was again run through the “lens” of the more liberal Encino Motors Supreme Court decision on how to interpret FLSA law and regulation.

FLSA 2020-10 – This Opinion Letter looked at whether one of the FLSA’s position specific “minor” statutory exemptions was met by the employer. The employer sells “home furnishings to the public in small stores employing two to five employees.” The employer pays its salespeople hourly because the salesperson will not earn much through the commission plan used by the employer. The question at hand is whether the employer incurs an overtime obligation under the retail or service establishment exemption (Section 7(i) of the FLSA). Specifically, when a new store is opened, and the sales volume is unknown and the employment of new, untested salespeople. What should the employer do if in certain weeks the amount of commission does not meet the exemptions requirement that at least half of the person’s pay will consist of commission-based pay?

Specifically, Section 7(i) of the FLSA applies if:

“(1) the employee is employed by a retail or service establishment;

(2) the employee’s regular rate of pay exceeds one and one-half times the minimum hourly rate; and

(3) more than half of the employee’s compensation for a representative period (not less than one month) consists of commissions on goods or services.”

The Opinion Letter, again relying on the Encino Motors v. Navarro SCOTUS decision found that this employer met all of the above requirements, and they could treat its employees as exempt under 7(i) despite not having any assurance as to the level of commission on income. The Opinion Letter stated that while the scenario described was not explicitly stated in the regulations, nothing in the FLSA prohibited the employer from doing this.

All hail Encino Motors LLC v. Navarro.

Sources: USDOL WHD Opinion Letters 2020-6, 2020-8 & 2020-10

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