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Bright Future in Sales? The Outside Salesperson FLSA ExemptionWith minimum wage increasing at federal, state, and local levels and with wage and hour cases on the rise, we receive many questions about exemptions to overtime laws. One such exemption that does not get as much coverage as others is the “outside sales exemption.” If your company has an outside salesperson – selling goods or services – this may be an exemption for you.

The Federal Basics

The federal law governing wages and hours is called the Fair Labor Standards Act (FLSA). The FLSA requires minimum wage for all hours worked and wages at one and one half times the base rate of an employee for all hours worked over 40 in a work week. There are exemptions from the minimum wage and overtime requirements that fall into two basic categories. One is for supervisory employees who are paid a salary, and the other is for employees in “outside sales” positions. In general, to meet the exemption, an employee’s “primary duty” must be “making sales” or “obtaining orders” and he or she must be “customarily and regularly engaged” away from the employer’s place of business. Notably, there is no particular pay method required to meet this exemption as there is for other FLSA exemptions.

For clarity, the regulations define these important terms as follows:

  • Primary Duty: The primary duty is the principal, main, majority, or most important duty that the employee performs.
  • Sales: Sales include any sale, exchange, contract to sell, shipment for sale, or other disposition.
  • Away: Away can mean the customer’s place of business or home or some other selling location (a hotel is an example) but not the employer’s place of business whether by telephone or by internet or in person.

Check State Laws

Companies wishing to use the outside sales exemption must be careful of state laws regarding overtime as well. Many states have no law at all or else have a law but follow the federal requirements for the exemption exactly. Other states, however, have a unique test for the exemption or even have very specific limits on how much non-sales work an employee can perform without losing the exempt status. For example, an employee can spend no more than 20 percent of his time on non-sales activities in Pennsylvania or else the exemption is lost.

Some tips:

  1. Make sure your employee is selling something. Needless to say, this is fairly important. Job descriptions should have the word “sell” in them a lot.
  2. Limit administrative or clerical work.
  3. Emphasize that the work should be performed at the customer’s place of business or the customer’s home if applicable.
  4. Make sure that the compensation structure is commission based and distinguishable from the pay methodology for other employees.
  5. Minimize direct supervision of your exempt outside salesperson, especially over “tasks” or repetitive work. The supervisor’s focus should be on sales goals.
  6. If some sort of tracking is used, make sure the tracking is of sales goals and not hours worked.
  7. Minimize work “on the phone” from the office or a fixed location.
  8. Make sure that any promotional work is done for the employee’s own sales.

Cooperate or Pay: Recovering Attorneys’ Fees to Get to ArbitrationDoes your arbitration agreement allow you to recover attorneys’ fees if the employee rebels against arbitration and you have to compel it? Maybe it should. In Aralar v. Scott McRea Automotive Group, a court in Florida recently affirmed an arbitrator’s award of nearly $20,000 in attorney’s fees for the defendant’s hassle of moving for arbitration. Employers with arbitration agreements should be encouraged that the fees incurred for moving for arbitration (when it should be clear cut) may be recoverable with the contract clause.

The Facts and the Arbitration Clause

Aralar worked in the McRea auto service center and filed a lawsuit in court under the FLSA for unpaid overtime and back wages. Pursuant to an arbitration agreement Aralar signed as a condition of employment, McRea notified Aralar’s counsel multiple times that he could not pursue the matter in court — it had to go to arbitration.

The arbitration clause provided that if one of the parties filed an action in court that was subject to arbitration, the other party would provide notice of the arbitration requirement and request to have the case dismissed. If the party who filed the court action did not dismiss the case within 10 days and the case ultimately ended up in arbitration following a motion, the moving party could recover reasonable attorneys’ fees incurred “because of the filing of the complaint.”

Aralar did not respond, and McRae filed a motion to dismiss the case and compel arbitration. Yet again Aralar failed to respond, although he eventually agreed to the arbitration forum about six weeks after it was filed. The court then compelled the matter to arbitration and stayed the case pending the results. Aralar did not end up filing his request for arbitration for another six months after the court’s ruling.

About a year later, the arbitrator granted McRae’s motion for judgment on the pleadings, finding that Aralar’s job as a service advisor was exempt from FLSA requirements. A few months later, the arbitrator awarded McRae the fees and costs incurred up through the time the case was stayed by the court, a sum totaling $19,291.58. The fees and costs awarded were about half of the amount requested.

After no further response was received from Aralar, McRae filed a motion with the court to confirm the arbitration award. Aralar finally woke up and filed to vacate the attorneys’ fee award.

The Court’s Decision

In his ruling, the judge conveyed that any party seeking to vacate an arbitrator’s findings must clear a high hurdle because federal courts defer to an arbitrator’s decisions whenever possible. Then the judge said the same standard applies for award of attorneys’ fees. Aralar contended that (1) fees should only be awarded as a sanction, and (2) that because his FLSA claim was not frivolous, the awarding of fees was inappropriate based on rulings in civil rights cases. The judge rejected those contentions and found that because the parties contractually agreed to the arbitration agreement’s fee shifting provision and Aralar did not withdraw his lawsuit within 10 days of notice, McRae was entitled to enforce the contract terms and recover the fees incurred to get the matter into arbitration.

Takeaways

The decision makes sense and these fee shifting clauses could be a useful tool to avoid fights about arbitration. Where the employer has to have its attorneys compel a matter into arbitration when the employee should have agreed to it, that unnecessary expense should come out of the plaintiff’s pocket. Employers should find some small encouragement that fee recovery provisions will be enforced. At the very least, the Aralar decision provides leverage towards peaceful agreements into arbitration rather than a fight. No plaintiff wants to pay a former employer—especially when they filed a lawsuit to try and get money.

When Lump-Sum Payments to Employees are Earnings for Garnishment Purposes

Welcome to Part 3 of our series on the Department of Labor’s three new opinion letters. We previously looked at the opinion letters on FMLA intermittent breaks and travel time compensation. If you missed those posts, you can catch up here (FMLA breaks) and here (travel time).

When Lump-Sum Payments to Employees are Earnings for Garnishment PurposesNext up is the wage garnishment letter, which analyzes when a lump-sum payment to an employee constitutes “earnings” subject to garnishment under Title III of the Consumer Credit Protection Act (CCPA). As background, the CCPA limits the amount of earnings that may be garnished pursuant to court orders, such as for child support. Those limits are 50% of an employee’s disposable earnings (i.e., earnings after applicable withholdings) if the employee is supporting another spouse or child, or up to 60% of disposable earnings if the worker is not. (Garnishments may be subject to additional limits under applicable state law.)

The CCPA recognizes “earnings” as any “compensation paid or payable for personal services, whether denominated as wages, salary, commission, bonus, or otherwise, and includes periodic payments pursuant to a pension or retirement program.” As the DOL has previously noted, earnings under the CCPA include lump-sum payments made in exchange for the employee’s services. This new opinion letter addresses three categories of lump-sum payments: earnings, partial earnings, and not earnings.

Earnings Subject to Garnishment

Most lump-sum payments to employees are earnings and thus, as subject to garnishment. Though the CCPA specifically identifies commissions and bonuses as earnings, the letter emphasizes that bonuses in particular come in many forms: signing bonus, referral bonus, relocation incentive, attendance award, etc. Regardless of its name, all of these are still bonuses subject to garnishment. Similarly, retroactive merit increases, holiday pay, or termination pay are all tied to an employee’s work and thus are earnings and garnishable.

Partial Earning Maybe Subject to Garnishment

Some lump-sum payments are partially earnings, such as workers’ compensation and lawsuit settlements. In the workers’ compensation context, for example, an employee may receive payments to replace lost wages as well as medical expenses. The wage substitute payments are earnings (subject to a garnishment order), and the medical expenses are not. Similarly, for a lawsuit settlement, if an employee receives some portion for lost wages and another portion for compensatory damages, any payment for wages counts as an earning (garnishable), but compensatory or punitive damages would not.

Not Earnings Not Subject to Garnishment

Lastly, the letter recognizes only one instance in which a lump-sum payment is categorically not an earning: the buyback of company shares from the employee.

As always, ask your lawyer if you have questions about what constitutes earnings. Questions about lump-sum payments also appear frequently in the wage and hour context—if a non-exempt employee receives a non-discretionary bonus, that amount should be factored into his or her hourly rate for overtime calculations.