Salesperson or Outside Salesperson - What’s the Difference?

06 May 2019 Labor & Employment Law Perspectives Blog

If we’re talking about the Fair Labor Standards Act (FLSA), the answer is that there is quite a significant difference. An outside salesperson is not entitled to an overtime premium, and is not even entitled to minimum wage or to the minimum salary requirements of the executive, administrative or professional exemptions. In other words, an employer who does not pay a penny to an outside salesperson week after week, regardless of the number of hours worked, will not violate the FLSA. The statutory history indicates that Congress did not mandate coverage for outside salespersons because these workers are often highly paid and receive generous benefits.

In contrast, salespersons who do not satisfy the requirements of an outside salesperson are entitled to minimum wage and are generally entitled to overtime,[1] even when their salesperson compensation agreement provides for payment solely upon commission.

What protection is provided to those outside salespersons who are low-paid? The U.S. Court of Appeals for the Second Circuit (covering Connecticut, New York, and Vermont) recently acknowledged that there is no protection for such workers. In the case at issue, Vasto v. Credico (USA) LLC, a group of workers who obtained applications for cell phone service in the capacity of independent contractors sued the company, claiming that they were misclassified as independent contractors and had they been properly classified as employees, should have been paid overtime under the FLSA. The court found that it did not matter whether the workers were independent contractors or employees. According to the court’s reasoning, even if these individuals should have been classified as employees, they functioned as outside salespeople, who are exempt from the FLSA’s minimum wage and overtime protections.

The key factor distinguishing outside salespersons from other salespersons covered by the FLSA is whether the employees were “customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.” The workers in the Vasto case conceded that they performed their duties away from the employer’s place of business.

The workers argued, however, that unlike the typical outside salesperson, the workers in question were low paid. They also contended that they are not salespersons within the meaning of the FLSA because they solicited applications, not contracts, and it was up to the company whether to accept the applications. The court was not swayed by these arguments, and held that the FLSA regulations do not distinguish between low paid outside salespersons and their richer counterparts and that there is no requirement that the salesperson close the deal.

Because salespeople in general are covered by the FLSA, but outside salespeople are not, the expense of labor costs will be radically affected depending on where the work is performed. Employers should not assume that because a salesperson works solely on commission, the employee is exempt under the FLSA.

[1] As we have written previously, some commissioned sales employees of retail or service establishments may not be entitled to overtime if they satisfy the criteria of the “retail sales exemption.”

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