On June 26, 2020, the U.S. Department of Labor issued a series of opinion letters addressing myriad unrelated wage and hour issues, including: (1) the outside sales exemption; (2) the retail or service establishment exemption; (3) application of the administrative exemption to a governmental employee’s job duties; and (4) whether third-party payments count as “wages.”
Below is a summary of each of the issues presented in the opinion letters, a brief synopsis of the facts underlying the issue and the DOL’s opinion on each.
Who Qualifies for the Outside Sales Exemption?
Issue No. 1: Do sales employees who primarily engage in sales activities based out of their employer’s vehicle traveling to different locations qualify for the outside sales exemption? (FLSA2020-6)
Issue No. 2: Do sales employees who set up displays and perform demonstrations to promote their employer’s products at third-party locations and events qualify for the outside sales exemption? (FLSA2020-8)
Employees employed in “outside sales” are exempt from the Fair Labor Standards Act (FLSA) minimum wage and overtime requirements. To qualify for this exemption, an employee must meet two requirements. First, the employee’s primary duty must be “making sales” or “obtaining orders or contracts for services” from customers. To make a “sale” within the meaning of the exemption, the employee must obtain a customer’s commitment to buy the product and be credited with the sale. If an employee’s work is “directed toward stimulating the sales of [their] company generally rather than the consummation of [their] own specific sales,” then the employee does not qualify for the exemption.
Second, the employee must be “customarily and regularly engaged” in sales activities “away from the employer’s place or places of business.” A place of business is defined as a “fixed site . . . used by a salesperson as a headquarters.”
Scenario No. 1: An employer provides its sales employees with a mobile, “stylized truck” stocked with products, marketing exhibits and demonstration units. The sales employees travel to different high-traffic locations in the truck and use the truck as a marketing tool to attract customers and facilitate sales. About 80 percent of the employees’ working time is spent deployed in the truck, and the rest of the time is spent on sales-related duties such as inventory management and event planning.
Opinion: The sales employees qualify for the exemption because they customarily and regularly perform their sales duties away from the employer’s place of business. Importantly, the employer-provided trucks do not qualify as a “place of business” within the meaning of the exemption because the trucks are regularly driven to different sales sites, thus they do not qualify as “fixed sites” or “headquarters.” The DOL emphasized that to deem one of the trucks as a “fixed site” would “eviscerate” the meaning of that term.
Scenario No. 2: An employer requires its sales employees to spend a majority of their time traveling to retail stores, trade shows, state and county fairs, and other similar third-party locations to set up displays and perform demonstrations to market the employer’s products. At some locations, the sales employees sell products and process payments from customers directly. At other locations, customers make purchases through the retailer hosting the event, and the retailer pays the employer an agreed-upon portion of any sales made on-site.
Opinion: The employees who sell products and process transactions directly with customers qualify for the outside sales exemption because they secured a customer’s commitment to buy the product and were presumably credited with the sale since they directly processed the transaction. With respect to the employees who work at retail locations where customers purchase the products directly through the retailer, the DOL did not reach a conclusion because the fact pattern did not state whether or explain how individual employees received credit for their sales.
When Are Commissioned Employees in Retail or Service Establishments Exempt?
Issue: Are retail or service establishment employees exempt from overtime if more than half of their compensation represents commissions during some weeks but not during other weeks? (FLSA2020-10)
An employee is exempt from overtime if: (1) the employee is employed by a retail or service establishment; (2) the employee’s regular rate of pay exceeds one-and-a-half times the minimum hourly rate; and (3) more than half of the employee’s compensation for a representative period (not less than one month) consists of commissions on goods or services.
Scenario: A furniture retailer employs salespersons who earn commission. The amount of commissions earned varies from week to week. During some weeks, salespersons earn more than half of their total compensation in commission. During other weeks, earned commissions constitute less than half of their total compensation.
Opinion: Commissioned retail or service employees are entitled to the exemption during those “representative periods” in which they earn more than half of their compensation in commission (the 50 percent requirement). For new employees with no sales history (and thus no pre-established “representative period”), the employee is exempt only if, at the end of the representative period, the employee has met the 50 percent requirement. If the employee did not meet the 50 percent requirement in the initial representative period, the employer must pay overtime during that initial representative period, but the employer can establish a new representative period to meet the 50 percent requirement prospectively.
When Do Third-Party Payments Count Toward Minimum Wage?
Issue: Can payments to employees from third parties be credited toward the employer’s minimum wage obligations? (FLSA2020-7)
The FLSA requires employers to pay many employees a minimum hourly wage. Whether payments from third parties constitute wages under the FLSA depends on the terms of the employment agreement and compliance with other FLSA requirements. An agreement to include such third-party payments as part of overall compensation may be express or implied based on the particular circumstances.
Scenario: Sales consultants employed by a car dealership receive payments directly from car manufacturers pursuant to incentive programs for meeting sales goals or selling certain vehicles. The car dealership communicates these third-party incentive programs to their sales consultants and works with the manufacturers to determine who is eligible to receive such payments. The dealership embraces these incentive payments as part of the sales consultants’ wages.
Opinion: The dealership can credit the manufacturer’s incentive payments toward the dealership’s minimum wage obligations because an implicit agreement exists between the dealership and the sales consultants to count such third-party payments as wages. The dealership’s role in communicating the incentive payment terms to the employees before starting their work, as well as the dealership’s role working with the manufacturers to determine eligibility for payments, show that the dealership intended the payments as part of the sales consultants’ compensation. Moreover, the dealership embraces these third-party incentive payments as wages, which according to the DOL “strongly suggests” that the payments are part of the employment relationship.
When Are Government Employees Exempt?
Issue: Does an emergency management coordinator (EMC) working for a county government qualify for the administrative exemption? (FLSA2020-9)
To qualify for the administrative exemption, an employee’s primary duty must meet three requirements: (1) it must involve the performance of office or nonmanual work; (2) it must include “exercising discretion and independent judgment with respect to matters of significance”; and (3) it must “directly relate to the management or general business operations of the employer or the employer’s customers.”
Scenario: A county government employs two EMCs who work under the director of emergency management. The job description for the EMC position includes a long list of duties, many of which fall into the following categories: planning and business management, government relations, public relations, educational, and volunteer and grant writing. It is assumed that the EMC position exercises discretion and independent judgment with respect to matters of significance.
Opinion: While the DOL did not reach a conclusion on whether the EMC qualified for the administrative exemption because the fact pattern did not identify the “primary duty” of the position, the opinion nonetheless provides useful guidance on the analytical framework for determining whether certain governmental job duties are exempt or non-exempt functions. Importantly, the DOL drew a distinction between job duties that involve “the day-to-day carrying out of the government’s functions” (which are typically non-exempt functions) from “running the government (or a component of government) . . . or determining its overall course and policies” (which are typically exempt functions).
The DOL’s latest round of opinion letters demonstrate that the tests for FLSA exemptions continue to be highly fact-specific and challenging for employers to navigate. For assistance in compliance with the FLSA, or for any other question related to employment law, contact the authors of this article or another member of the McGuireWoods labor and employment team.