A Federal Appeals Court recently ruled that marketers who hand out samples and promote products qualify as outside salespeople under the Fair Labor Standards Act (“FLSA”), and are thus exempt from the overtime provisions of the FLSA.
Under the FLSA, employees are entitled to overtime pay, unless an exemption applies. One of those exemptions is for “outside sales employees,” defined as employees whose primary duty is making sales or obtaining orders or contracts for goods or services, and who regularly work away from the employer’s place of business.
In Modeski v. Summit Retail Solutions, Inc., the 1st Circuit Court of Appeals examined the classification of employees of Summit Retail Solutions, Inc., a marketing company that contracts with retail stores to provide in-store demonstrations designed to boost sales. Summit employs “Brand Representatives” to demonstrate products and provide free samples to customers in retail stores. A group of brand representatives brought a class action seeking to recover unpaid overtime wages under the FLSA. They conceded that they were “customarily and regularly engaged away from the employer’s place of business” and that their “primary duty” was to engage with potential customers and try to convince them to buy featured products. However, they argued that their activities did not amount to “making sales” because they did not obtain a sufficiently concrete purchase commitment from shoppers. The U.S. Court of Appeals determined that these Brand Representatives did “make sales” within the meaning of the outside sales exemption of the FLSA.
In making its determination, the U.S. Court of Appeals looked to the U.S. Supreme Court case Christopher v. SmithKline Beecham Corp. for guidance. In Christopher, the U.S. Supreme Court was asked to determine if pharmaceutical sales representatives were exempt from overtime provisions of the FLSA as “outside salespersons.” The Supreme Court found pharmaceutical sales representatives were exempt from the FLSA and did not require them to have obtained a firm commitment to buy in order to determine that they “make sales” within the meaning of the FLSA.
The Modeski majority stated, “although [brand representatives] do not ring up any purchase at the register, Brand Reps do as much as practically possible to in some sense make a sale in the retail store context in which they operate.” Their goal is to persuade shoppers who can then make the determination to buy the product. The Court of Appeals found that this type of transaction fell within the broad “other disposition” catchall for the definition of “sale” under the FLSA. The Court, in pointing out that a cashier makes no effort to persuade customers to buy the product, stated the brand representative “is the last person to make an actual sales effort; the finalization process – at the checkout register when the cashier rings up the purchase – is simply a nondiscretionary ministerial act that does not involve any additional sales effort.”
Employers should review this holding, and use it as an opportunity to review their exempt employee classifications. Keep in mind that this case and the FLSA concern federal law on the exemptions, which may not be applicable in all states.