Originally publilshed April 2005
The Explosion in Wage & Hour Litigation. Since 2001, the United States Department of Labor has collected more than $600 million in back wages, on behalf of more than 1 million employees, from employers found to have violated the Fair Labor Standards Act (the "FLSA"). FLSA class action lawsuits are now more prevalent in the federal courts than employment discrimination class actions. The same is true in many state courts with respect to wage and hour class actions under state law.
One of the plaintiffs' lawyers favorite tactics during the current litigation boom has been to challenge the exemption status of an entire group of employees with similar job duties - claiming that the entire group has been misclassified as exempt and is therefore entitled to several years’ worth of back overtime pay. Some enterprising plaintiffs' lawyers have even established various Web sites for the purpose of soliciting disgruntled employees to bring these types of class action lawsuits, including: www.overtimelawyer.com, www.paymyovertime.com, www.overtimepay.com, and www.overtimecases.com.
Exemption cases are appealing to plaintiffs' lawyers for a number of reasons. The FLSA presumes employees to be nonexempt, placing the burden of proving the exemption on the employer. Further, the FLSA presumes that actual damages will be doubled as a penalty for violations. Summary judgment is difficult to obtain in exemption cases because the central question is "what are the employee's actual job duties?" - an inherently fact-specific inquiry that the parties necessarily dispute. Finally, settlement is often complicated because it may require the employer to either reclassify all employees with the same job or to accept the risk of future repeat lawsuits in the absence of reclassification.
"Outside Salesperson" Challenges: The Next "Hot" Exemption Case? While plaintiffs' attorneys have targeted the exemption status of countless different jobs, the most common cases so far have generally fallen into one of the following two categories. First are the so-called "manager" and "assistant manager" cases, where a group of employees that have a "manager" or "assistant manager" title claim that they are misclassified as exempt because, although called "managers," their actual job duties do not include sufficient supervisory responsibilities to qualify for the FLSA executive exemption. The second general category of exemption cases has tested the limits of the FLSA administrative exemption, which employers have historically overused as a "catch-all" to cover white-collar employees whose duties are neither professional or executive.
More recently, creative plaintiffs' attorneys have set their sights on what might be the next wave of exemption cases: salespersons claiming they are improperly classified as exempt "outside salespersons" under the FLSA. In fact, there is one Minneapolis-based plaintiffs' firm bringing numerous cases throughout the Midwest attacking "outside salesperson" classifications. Copycat claims are almost sure to follow - especially if the plaintiffs prevail in any of these cases.
The current FLSA regulations provide that an "outside sales" employee is exempt if the employee's "primary duty" is the "making of sales . . . or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer" and the employee is "customarily and regularly engaged away from the employer's place or places of business in performing such primary duty." Until recently, employers and employees generally assumed that, so long as the employee was in fact a salesperson who spent the majority of his or her time outside the office trying to make sales, that employee was an exempt "outside salesperson." This is no longer a safe assumption.
One of the novel theories being raised by plaintiffs is that it is not sufficient that the salesperson spend the majority of his or her time outside the office soliciting sales. Rather, plaintiffs assert, the sale itself must actually, physically close at the customer's place of business. If the actual sale is closed anywhere else, be it over the telephone, via e-mail, over the Internet, or in order forms carried back and officially "approved" by the company at the employer's headquarters, plaintiffs argue that the "outside salesperson" exemption does not apply. The good news for employers is that this argument has yet to prevail in court. The bad news, however, is that it does find some support in the text of the "outside salesperson" exemption regulations, such that it must be taken seriously.
Another less novel but equally serious argument pertains to the "home office" issue. Under the FLSA's "outside salesperson" regulations, a "home office" is considered one of the employer's places of business. Consequently, a salesperson who generates sales from his or her "home office" is generally not an "outside salesperson" under the FLSA - even if that salesperson never sets foot in the employer's office. This does not mean that any salesperson who maintains a "home office" is automatically nonexempt. Rather, it simply means that, in applying the "outside salesperson" regulations, a "home office" is to be viewed as an extension of the employer's office.
What Can Employers Do About This? Unfortunately, there is no magic recipe for avoiding challenges to the exempt status of salespersons (or any other employees for that matter). However, in light of the emerging trend attacking such classifications, employers should carefully review the manner in which their salespersons actually close sales and determine whether these issues raise potential concerns. If they do, employers should consider whether it is possible to make changes in the sales process in order to preserve the exemption and/or whether reclassification to nonexempt status might be appropriate.
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