A recent decision by the 1st U.S. Circuit Court of Appeals (covering Massachusetts, Maine, Rhode Island, New Hampshire, and Puerto Rico) held that a group of “brand representatives” employed by a marketing company to pitch particular products in client retail stores were properly classified as outside salespeople, making them ineligible for overtime.

Outside sales is one of the five principal exempt employment classifications under the Fair Labor Standards Act (FLSA). Unlike the other exempt classifications, the outside sales classification does not include a salary requirement. Instead, the employee must meet the following duties test to be classified as an outside salesperson:

• The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
• The employee must be customarily and regularly engaged away from the employer’s place or places of business.

While it was not a unanimous decision, the court majority rejected the employees’ argument that they were not outside salespeople because customers did not buy from them directly and therefore, they were not making sales. Rather, the customers paid for the products promoted by the brand representative at store cash registers along with other merchandise.

According to court records, the plaintiffs worked as brand representatives for a third-party employer between 2014 and 2019. Their work involved demonstrating products and interacting with customers at many of the larger wholesale club stores.

While the customer may have taken a product from the brand representative somewhere inside the store, the final purchase did not occur until the customer paid for it at the store cash registers operated by store employees. That meant that a customer who took a product from a brand representative could change their mind and take it out of their cart before reaching the register.

Based on this arrangement within the store, the brand representatives argued that they were regular employees of the third-party employer and not outside salespeople and were therefore entitled to minimum wage and, if appropriate, overtime.

Two contextual issues regarding this group of employees loomed in the background.

The first issue involved a change of mind by the third-party employer. In prior years these same positions had been classified as non-exempt and the employees had been overtime-eligible, when appropriate. Apparently at some point the company decided to reclassify these positions as outside sales. As the court noted, an employer’s classification of a position as exempt or non-exempt is not dispositive, it is the duties of the position that matter.

The second issue involved the company’s “true up” pay system designed to pay the employees additional monies based upon their sales. Because of the formula the company used for calculating payments, these employees argued that the true up system forced them to underreport their hours thereby denying them overtime.

Given the court’s ruling that they were outside salespeople exempt from overtime, neither of these issues impacted the final decision. The employer argued successfully that the employees’ duties demonstrated that they were outside salespeople because their primary duty was making sales at a location away from the employer’s typical place of business. The court rejected the employees’ argument that the exemption did not apply because they merely stimulated sales consummated by others at the cash register and thus their primary duty was not “making sales” within the meaning of FLSA.

nless appealed to the Supreme Court and overturned there, this case settles the question of the proper classification of brand representatives for now in the First Circuit.

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