Outside Sales Exemption from Overtime Pay Not as Simple as You Might Think.

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Many employers seem to think that they can pay an employee who is involved in selling products away from the workplace a salary and commission without having to worry about overtime pay.  In some cases, employees are true, exempt outside salespeople.  However, often these employees have been misclassified and are, in fact, due overtime.

The outside sales exemption is intended to apply to employees who direct their own work and  who, by increasing the hours that they work and the calls to customers that they make during those hours, are able to increase their pay.  In 1941, the Tenth Circuit Court of Appeals elaborated on the reasoning behind the exemption:

The reasons for excluding an outside salesman are fairly apparent. Such salesman, to a great extent, works individually. There are no restrictions respecting the time he shall work … He works away from his employer’s place of business, is not subject to the personal supervision of his employer, and his employer has no way of knowing the number of hours he works per day. To apply hourly standards primarily devised for an employee on a fixed hourly wage is incompatible with the individual character of the work of an outside salesman.

Jewel Tea Co. v. Williams, 118 F.2d 202, 207-08 (10th Cir. 1941).

In recent years, employers in Connecticut and elsewhere have sought to apply this reasoning to employees who do  not spend their time making direct sales outside the workplace, and therefore don’t have the opportunity to augment their pay in this manner.  These misclassified employees may not actually spend their time making sales for which they are credited, or they maybe subject to such strict rules and regulations that they aren’t independent actors who develop their own style and client base.

One aspect of the outside sales exemption that employers get wrong is whether the employee is, in fact, working outside the employer’s place of business.  In one case, a company employed mortgage loan officers in real estate offices owned and operated by a different company and treated the loan officers as exempt outside sales people.  The court held that the employees were not outside sales persons because they had: “(1) a designated personal desk or communal workspace; (2) keys or badges to gain full access; (3) access to conference rooms; and (4) the use of necessary office equipment (e.g., telephones, printers, and copy machines) to perform their duties” at the real estate offices.  Wolfram v. PHH Corp., 2014 U.S. Dist. LEXIS 82378 (S.D. Ohio June 17, 2014).

These rules make good sense.  If an employee can increase the amount of money he makes by taking the initiative- making appointments, showing samples, sweet talking potential customers, and refining his pitch- then the employer may incentivize this activity by paying a base salary plus commission.  However, if the employee is stuck at the employer’s place of business, following the employer’s detailed rules for making sales, then the employer is not entitled to rely on whatever commissions the employee may or may not be able to earn within the employer’s parameters.

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