On Monday, a divided Sixth Circuit Court of Appeals affirmed
a jury verdict in favor of door-to-door salespeople for an energy company,
finding that they were not exempt outside salespeople. Hurt v.
Commerce Energy, Inc., No. 18-4058
(6th Cir. 8-31-20). The Court
found that they did not have authority to make sales where the company retained
the unfettered discretion to reject the customer applications they obtained,
that they were not taking orders for a service and that their compensation was
far less than the minimum wage.
Accordingly, the jury could reasonably find that they did not satisfy
the regulatory requirements and did not reflect the other indicia of outside
salespeople which justifies them being exempt in the first place.
According to the Court’s opinion, the plaintiffs were hired
to go door to door in assigned neighborhoods soliciting energy contracts and
were paid purely on a commission basis. They signed agreements calling them
independent contractors and were not required to work a minimum number of
hours. They were required to attend
daily meetings and to adhere to a dress code. Once they obtained the customer’s
signature on an application and put them in touch with a third-party verifier
(as required by the State), they were not allowed to have any further contact
with the customer. Further, the company
possessed unfettered discretion to reject the customer’s application for a
variety of reasons, including poor credit.
The plaintiffs were never told why an application was rejected. The plaintiffs were never paid much commission,
some earning nothing, some earning only $400/month and the rest earning much
less than that despite working 10-hour days seven days/week. Some plaintiffs
were allowed to set their own workdays; others were not. The jury found that the plaintiffs were not
exempt outside salespeople.
Section 541.500 defines an outside salesperson as someone “customarily and regularly engaged away from the employer’s place or places of businesses,” whose primary duty is either 1) “making sales” or 2) “obtaining orders or contracts for services.”
The Court rejected the argument that the plaintiffs were “obtaining
orders or contracts for services,” because electricity and natural gas are
commodities, not services. As to the
first part of the regulation – to make sales, the Court’s majority found that
these salespeople could not be exempt because the orders they obtained could be
(and frequently were) rejected by the company without explanation to the
plaintiffs, who had no ability to again contact the customer. “Plaintiffs’ lack of authority to finalize
the transactions is significant when reviewing the facts under a “functional,
rather than formal, inquiry . . . in the context of the particular industry in
which the employee works.”
The Court distinguished a number of other cases, including a
Supreme Court case, Christopher v.
SmithKline Beecham Corp., 567 U.S. 142, 161 (2012), where pharmaceutical drug sales
representatives were still considered to be making sales by obtaining merely a
verbal commitment from a physician. The Court
found that case to be distinguishable because only physicians could prescribe
the drug and claimed that there was no such legal restriction here even though
the State required third-party verification of all of the company’s sales. Instead,
the Court relied on Killion v. KeHE
Distributors, LLC, 761 F.3d 574, 583–84 (6th Cir. 2014) declining to find
sales representatives to be exempt because the employer’s account managers
could control the volume and restrictions on food orders obtained.
In Killion, we reversed summary judgment in favor of the distributor because a jury could conclude that the plaintiffs did not actually make sales. 761 F.3d at 584–85. Similarly, Plaintiffs here communicated with potential customers, convinced them to try Just Energy products, and inputted their information onto the agreement. But Just Energy retained discretion over completion of sales, just as the account managers in Killion could restrict and control the volume of orders. It was appropriate for the jury and now this court to consider Just Energy’s retention of discretion over completion of sales as a factor in determining whether Plaintiffs were making sales.
The Court also rejected a contrary opinion about the
defendant company in the Second Circuit.
In New York, the Flood plaintiffs were
not required to leave the customer’s residence after placing the verification
call. Instead, they would wait and
insert the verification code into the agreement and could answer any of the
customer’s additional questions. More
importantly, they were paid far more, making as much as $70,000/year in
commissions plus incentive awards.
. . . .Wage issues, which the minimum wages requirements of the FLSA seek to address, also highlight the distinctions between the workplaces. The lead plaintiff in Flood earned more than $70,000 in commissions per year, was eligible to earn residual payments, and received incentive awards for travel around the world. Flood, 904 F.3d at 226. In contrast, testimony revealed that one Ohio plaintiff made only $1,200 over three or four months, while another made only $196 while working 12- to 14-hour days, six to seven days a week for about two months. And others testified to making nothing at all, even after working 11- to 12- hour days, six to seven days a week for several weeks. Of the 3,840 total individuals with compensation data available in the trial spreadsheets, 69% of the individuals made under $1,000 in total compensation and 62% of the individuals made under $500. In sum, Plaintiffs had significantly less control over their work, sale methods, and compensation than the New York solicitors. . . .
In addition to the regulation, the Court also considered
other factors that could indicate whether the exemption for outside sales
applied.
In analyzing the outside sales exemption, the Supreme Court has considered the “external indicia of salesmen,” which include: whether the workers were hired for their sales experience, whether they were trained to obtain the maximum commitment possible, whether they worked away from the office with minimal supervision, and whether they were rewarded with incentive compensation. Christopher, 567 U.S. at 165–66. Even though the Court considered these indicia as part of its conclusion that pharmaceutical detailers conducted more atypical sales work (qualifying as “other disposition” under the definition of “sale” in the statute, 29 U.S.C. § 203(k)), it did not limit the indicia analysis to exempt salespeople who fall under the catchall sales category of “other disposition.” See id. 164–66. We apply these indicia to the practices and procedures of Plaintiffs’ Ohio workplace.
In this case, the company did not require any prior sales
experience. The plaintiffs were
assigned streets to cover, given a script and required to leave as soon as the
third-party verification process started.
Importantly, the sales commissions paid were minimal and far
less than the minimum wage.
In determining whether the workers were “employed . . . in the capacity of outside salesman,” 29 U.S.C. § 213(a)(1), the Supreme Court also considered whether a plaintiff’s capacity “comports with the apparent purpose of the FLSA’s exemption for outside salesmen.” Christopher, 567 U.S. at 166. The Court explained that “[t]he exemption is premised on the belief that exempt employees ‘typically earned salaries well above the minimum wage’ and enjoyed other benefits that ‘se[t] them apart from the nonexempt workers entitled to overtime pay.’ Preamble 22124.” Id. The pharmaceutical detailers there earned an average of more than $70,000 per year, including both a base salary and incentive pay, which was “well above the minimum wage”; they were “not required to punch a clock or report their hours, and they were subject to only minimal supervision.” Id. at 151, 166. The pharmaceutical detailers also performed work that “was difficult to standardize to any time frame and could not be easily spread to other workers after 40 hours in a week.” Id. at 166. The Court concluded that pharmaceutical detailers are “hardly the kind of employees that the FLSA was intended to protect.” Id.
The Court also found the trial court’s jury instruction to
be an accurate statement of the law:
In determining whether a particular transaction qualifies as a sale for purposes of the Fair Labor Standards Act, you are required to consider the extent to which the employee has the authority to bind the company to the transaction at issue. However, when governmental regulatory requirements limit an employee’s ability to bind his employer, compliance with those governmental regulatory requirements do not disqualify the transaction from constituting a sale for the purposes of the outside salesperson exemption. . . . On the other hand, if the employer retains and/or exercises discretion to accept or reject any transactions for reasons that are unrelated to regulatory requirements applicable to the industry, the transaction should not be considered a sale for purposes of the Fair Labor Standards Act.
The Court also affirmed the admission of evidence about how
much compensation was actually paid to the plaintiffs instead of accepting the
stipulation that they were paid less than the minimum wage. The evidence was relevant to a number of
different issues in the case.
NOTICE: This summary is designed merely to inform and alert
you of recent legal developments. It does not constitute legal advice and does
not apply to any particular situation because different facts could lead to
different results. Information here can change or be amended without notice.
Readers should not act upon this information without legal advice. If you have
any questions about anything you have read, you should consult with or retain
an employment attorney.
