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Exemptions from Wage and Hour Requirements: Outside Salespersons

The Supreme Court’s recent decision provides a good jumping off point for the next in our series of posts about the exemptions from wage and hour rules–outside sales persons. The case before the Supreme Court dealt with representatives for pharmaceutical companies who visited physicians to promote sales of their employers’ products. Their job was to obtain nonbinding commitments from the physicians to prescribe the medication that they were promoting. Since the physicians’ patients’ were the ones who would be doing the purchasing, the representatives were not directly responsible for sales. See Christopher v. Smithkline Beecham Corp., Docket No. 11-204 (Jun. 18, 2012).

The Fair Labor Standards Act exempts a worker who is employed “in the capacity of outside salesman” from its overtime and minimum wage requirements. 29 U.S. Code section 213(a)(1). The Department of Labor regulations define “outside salesman” to mean “any employee . . .
[w]hose primary duty is . . . making sales.” 29 CFR 541.500. The FLSA states that “sale” includes “any sale, exchange, contract to sell, consignment for sale, shipment for  sale, or other disposition.” 29 U.S. Code section 203(k).The Department of Labor regulations provide that promotion work that is “performed incidental to and in conjunction with an employee’s own outside sales or solicitations is exempt work,” whereas promotion work that is “incidental to sales made, or to be made, by someone else is not.” 29 CFR 541.503. The employee must be “customarily and regularly engaged away from the employer’s place or places of business in performing” his or her duties.” 29 CFR 541.500.

The Supreme Court rejected the Department of Labor’s litigation position that the exemption requires a consummated transaction directly involving the employee for whom the exemption is sought, which would have left out the pharmaceutical representatives. Instead, it determined that “other disposition” was intended to include “those arrangements that are tantamount, in a particular industry, to a paradigmatic sale of a commodity.” In the pharmaceutical industry, the nonbinding commitments to prescribe medication were all that the representatives could do to ensure a sale.

The California exemption is similar. The wage orders define “outside salesperson to mean “any person, 18 years of age or over, who customarily and regularly works more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.” See, for example, Section 2(M) of Wage Order No. 4. See also California Labor Code section 1171. In Ramirez v. Yosemite Water Co., 20 Cal.4th 785, 85 Cal.Rptr.2d 844, 978 P.2d 2 (1998), the California Supreme Court explained that the California exemption is narrower because it is limited to those who spend at least half their working time selling away from the employer’s premises, rather than all those who have sales as a primary duty.