The Pandemic Death of a Salesman Exemption?
A commonly used exemption to federal and state overtime laws is the “outside sales” exemption, which generally provides that such sales representatives are not entitled to overtime pay for hours worked in excess of 40 per week. Importantly, the exemption also relieves employers of the duty to pay such employees a minimum wage.
Under the Fair Labor Standards Act and similar state exemptions, the outside sales exemption requires the employer to establish two elements:
1. The employee’s primary duty is making sales or obtaining orders for services or products; and
2. The employee is customarily and regularly engaged away from the employer’s place of business in making such sales.
For typical outside salespeople, who spend much of their time visiting customers “on the road” or in the customers’ place of business, this well-established exemption has been easy to establish. But Covid-19 has thrown a wrench into the analysis.
For the past year, most “outside sales” representatives have had to work from their home offices almost exclusively, rarely visiting their customers in person, and instead working the sales by phone or Zoom. So the question naturally arises, are they still exempt “outside sales” representatives?
Maybe, maybe not. For one, the U.S. Department of Labor (DOL) has not issued any guidance on the issue, and we are not aware of any court case yet determine a challenge.
In addition, case law, regulations and DOL opinion letters have made clear that working from a home office, making sales by telephone or internet, does not constitute “outside sales,” unless such activities are merely in support of in-person sales calls.
Given the pandemic, however, one might expect the DOL and/or the courts to loosen up the requirement for the “outside sales” definition, given the number of public health orders, regulations and restrictions limiting non-essential travel outside the home. That said, the issue has not yet been determined, and employers and employees should proceed with caution.
The easiest protection for employers against an overtime claim by such a sales representative is to restrict work hours during the pandemic to 40 hours or less by week. This solution, however, may be unmanageable or undesirable, if such employees need to work longer hours to succeed.
Employers also can consider alternative exemptions, but those may not be available under the FLSA or applicable state laws In any event, as with most of life’s challenges, the first step is acknowledging that you have a problem.