This post was contributed by Adam R. Long, a Member in McNees Wallace & Nurick LLC’s Labor & Employment Practice Group in Harrisburg, Pennsylvania.
Many employers treat their sales employees as exempt from the Fair Labor Standards Act’s overtime and minimum wage requirements. Regardless of whether they pay them a salary, commissions, or some combination of both, employers often assume that all salespersons are exempt and not entitled to overtime. Depending on the circumstances, this assumption can be problematic and costly.
For example, a federal district court in Georgia recently approved the proposed settlement of an FLSA collective action brought against Russell Stover Candies by a class of "sales representatives." The plaintiffs in Carter v. Russell Stover Candies, Inc., No. 13-cv-1552 (N.D. Ga.) alleged that they and other sales representatives were misclassified as exempt and entitled to damages for unpaid overtime compensation. After the court conditionally certified a class of sales representatives, Russell Stover Candies agreed to pay $3.075 million to settle the collective action. The settlement included payment to 103 class members.
The FLSA and Pennsylvania Minimum Wage Act both contain overtime exemptions for bona fide outside sales employees and for employees paid commissions by retail or service establishments. Neither exemption will cover every employee labeled a salesperson, however. The outside sales exemption applies only if the employee’s primary duty is "making sales" and the employee is "customarily and regularly engaged away from the employer’s place of business." This exemption does not apply to "inside" salespersons, and sales made via telephone, mail, and the Internet do not qualify as outside sales. In addition, the commissioned employee exemption applies only to employees of "retail or service establishments" who are compensated in a manner that meets the exemption’s requirements. Simply paying an employee on a commission basis does not automatically make the employee exempt from the overtime requirements.
Misclassification of salespersons has been a fertile ground for both class-based litigation and DOL investigations in the last few years. To avoid such an unexpected and unpleasant experience, employers who treat sales employees as exempt should confirm that these employees qualify for one of the exemptions or consider making changes to their compensation practices.