Outside Sales Exemption: Duties Matter
Recently, a Connecticut federal court denied a summary judgment motion to a pharmaceutical company after holding that former sales representatives were not exempt under the Fair Labor Standards Act’s (“FLSA”) “outside sales” exemption. This exemption provides employers a pass from the FLSA requirement to pay overtime wages to those employees employed “in the capacity of outside salesman.” To be classified as an outside salesperson, an employee must work away from the employer’s premises, and his or her primary duty must be either making sales or obtaining contracts or orders.
In Kuzinski et al, v. Schering Corp., No. 3:07cv233 (U.S. Dist., D. Conn. March 30, 2009), the plaintiffs, a group of former sales representatives from throughout the country, alleged that Schering Corp had misclassified them as “exempt” employees under the FLSA exemption for outside salespeople and, as a result, the company failed to pay them overtime wages to which they were entitled.
In denying defendant’s motion for summary judgment, this court held that under the FLSA, the sales representatives for the Company did not “sell” or make a “sale,” but instead offered promotional activities in marketing Schering Corp’s prescription pharmaceutical products. Thus, these employees were not truly outside sales representatives and hence were not exempt from the requirements of the FLSA for an employer to pay proper overtime wages for hours worked in excess of 40 hours per workweek.
The court also held as unpersuasive several other recent cases in federal courts such as In re Novartis Wage & Hour Litig., 593 F. Supp. 2d 637 (S.D.N.Y. 2009) and Delgado v. Ortho-McNeil, Inc., No. SACV07-0263 (C.D. Cal. Feb. 6, 2009), that ruled in favor of pharmaceutical companies on this very same issue.
Obviously, this is not the last word on this topic. It is, however, a cautionary tale for all employers that employ “outside salespeople.” The lesson: title alone will not suffice in the determination of whether an employee will fall under the “outside sales” exemption of the FLSA. Instead, the employee’s actual duties must meet the requirements as set forth in the regulations.
The FLSA regulations regarding outside salespeople can be found at 29 C.F.R. § 541.500 et. seq.
