For years, the outside sales exemption of the Part 541 white collar exemptions of the FLSA used to be the easiest one for an employer to demonstrate. For the exemption to apply, the worker had to be working away from the employer’s places of business (all such places) and be engaged in selling goods or services, as the term “sale” is defined under the FLSA. That may be changing at least in California. A California court has just ruled that the employer must not “control” the worker, which adds an entirely new layer to the analysis. The case is entitled Espinoza v. Warehouse Demo Services, Inc., and issued from the Court of Appeals.
The Court ruled that the phrase “away from the employer’s place of business” was broader than just meaning the employee was away from the premises. The Court stressed that whether the employer continued to exert control over the worker was the more relevant test. The Court referred to a 1998 Department of Labor Standards Enforcement (DLSE) Opinion Letter which noted that “outside salesmen have historically been exempt because it’s very difficult to control their hours and working conditions. They set their own time, and they’re on the road, they call on their customers … [R]arely do you know what they’re doing on an hour-to-hour basis.”
In this case, the offbeat set of facts dictated a new analysis. The employer’s place of business was within a warehouse owned by Costco. The employer had a designated area for the conduct of its business. The employees sold the goods and services in that designated area. The employer also maintained an office in every Costco warehouse where the workers clocked in and out, maintained their equipment and did their paperwork. The employees’ work hours were also established by the employer, which is quite different than the usual “traveling salesman” scenario.
The outside salesman typically has total discretion over the hours they work, where they will go, who they will call on and so on. Here, the employer set employee work schedules. These schedules did not vary, and employees had little or no discretion to alter those schedules. Against that factual predicate, the Court observed that “the exemption was not intended to apply to employees like [Espinoza] whose hours, schedule, and (exact) location of work are controlled by their employer.”
The Takeaway
This case may be an outlier as the facts on which the holding was based were very unique and I have rarely, if ever, encountered a similar employment scenario for outside sales employees. With that said, there is a cautionary tale for employers who may want to exercise more control over how their outside salespersons perform their work, e.g. scheduling and deciding who to sell. I think, however, other than being aware of this, it is likely not a major crisis. So, I will answer my own question.
Don’ t worry, be happy…
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