Seyfarth Synopsis: Two recent Department of Labor Opinion Letters addressing the FLSA’s outside sales exemption provide helpful guidance and flexibility to employers with unique business models.
In contrast to some of the FLSA’s more byzantine exemptions, the outside sales exemption (“OSE”) is a surprisingly simple test, with just two parts: (1) the employee’s primary duty must be “making sales” or “obtaining orders or contracts”; and (2) the employee must “customarily and regularly” perform that duty outside of “the employer’s place of business.” Notwithstanding its structural simplicity, the OSE can pose tricky issues when an employer deploys salespeople in new settings that were not contemplated when the FLSA and its implementing regulations were passed decades ago.
In two recent Opinion Letters, the DOL addressed a pair of unique sales roles that have emerged in the modern economy: employees who drive company trucks to public events and use the parked vehicles as a base from which to sell products, and employees who sell products at garden shows and big box stores operated by third parties.
FLSA2020-6: Company vehicles are not the “employer’s place of business”
In FLSA2020-6, the DOL concluded that the OSE applies to employees who drive company-owned trucks to “high-population areas and events,” including concerts and festivals, in order to demonstrate products and make sales. The trucks are “stocked with merchandise, marketing displays and demonstration units,” and the salespeople walk around the event with tablets to demonstrate products and process sales.
The DOL first concluded that the employees satisfy the “making sales” prong because they complete their own sales of tangible products or obtain signatures for service contracts, and they are credited for their individual sales.
The DOL also addressed the more subtle question of whether the trucks are the employer’s place of business for purposes of the “outside” requirement of the OSE. The DOL answered this question “No,” noting that the trucks are not “fixed sites” used as a sales headquarters because the employees drive the trucks from site to site with no “permanent . . . physical connection to a deployment site.” The agency also noted that even if the trucks were the employer’s place of business for purposes of the OSE, the employees would nonetheless be customarily and regularly engaged in outside sales work because they do not stay “stationary in their trucks.” Instead, they walk around the events to mingle with customers, and the DOL analogized them to classical door-to-door salesmen in this regard.
Noting that the employees typically spend about 80% of each workweek “deployed” at event sites, which changed each day, the DOL also concluded that the employees “customarily and regularly” perform the duty of making sales away from the employer’s place of business.
FLSA2020-8: Sales at Trade Shows and Big-Box Stores
In FLSA2020-8, the DOL addressed employees who “travel to various retail operations,” including: (1) garden shows/tradeshows/county fairs; and (2) “big-box stores.” The salespeople “set up displays in which they exhibit and demonstrate products they are selling” in traveling road shows. At the sales sites in in the first category, the salespeople “process the payment directly and no third-party retailer is involved.” The DOL concluded that the OSE readily applied to the salespeople at issue while working at such public events.
As to the big-box store locations, the DOL found the analysis to be more complex and certain important facts to be lacking. In those locations, “[c]ustomers 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.” The employees conduct their sales at a given location for 10 to 21 days, before moving to a new location.
Noting the lack of specific information from the employer about the working circumstances of these employees, the DOL opined that the employees would qualify for the exemption when working in big box stores if they “obtain a commitment to buy” from the customer and are “credited with the sale.” Thus, FLSA2020-8 left open the important questions of what constitutes a “commitment to buy” a product in the big box retail context, and what standard determines whether employees sufficiently receive credit for their individual sales to meet the exemption.
The current case law also provides very little guidance on these issues. However, a few days after FLSA2020-8 was issued, one District Court picked up where FLSA2020-8 left off and concluded that employees conducting road show presentations in big box stores were properly subject to the OSE. The court reached this conclusion based on a factual record demonstrating that the employees were credited for their individual sales and obtained informal, non-binding commitments to buy when prospective customers took products from their display with an apparent intent to buy them at the store’s cash registers.
These Opinion Letters extend a trend toward the flexible application of the OSE that accords with the Supreme Court’s analysis in Christopher v. Smith-Klein Beecham and rejects unduly technical or narrow readings of the exemption.