The COVID-19 pandemic has changed the way that work is being performed. Adjustments made by employers to the duties performed by  employees during the pandemic may unwittingly have exposed employers to significant liability. For example, the performance of work remotely during the pandemic may lead to severe consequences for employers who classify any employees as exempt outside sales employees.

Under the New York Labor Law (“NYLL”), an “outside salesman” is excluded from the definition of “employee.”1 Similarly, an “outside salesman” is excluded from the minimum wage and overtime requirements under the Fair Labor Standards Act (“FLSA”).2 As a result, employers need not pay an employee who qualifies as an outside salesperson under the NYLL and FLSA minimum wage or overtime when the employee works in excess of forty hours in a work week. It must be noted that the exemptions are narrowly construed and the employer bears the burden of establishing that an employee is exempt from minimum wage and/or overtime requirements.3

Under the FLSA, an outside sales employee is:

1. an employee whose primary duty4 is making sales within the meaning of Section 3(k) of 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”5; and
2. “who is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.”6 Unlike other exemptions, the outside sales exemption does not have a minimum salary requirement.

Similarly, under the NYLL, an outside salesperson is an individual “who is customarily and predominantly engaged away from the premises of the employer and not at any fixed site and location for the purpose of:

1. making sales;
2. selling and delivering articles or goods; or
3. obtaining orders or contracts for services or for the use of facilities.”7

During the height of the pandemic, and still presently, sales employees routinely worked from home and were unable to go door-to-door to make sales or visit the customer’s place of business. With sales employees working from home, the question became, do they still qualify for the exemption?

The answer to this question will be determined on a case-by-case basis, depending on each employee’s particular circumstances, and employers who seek to avail themselves of the outside sales employee exemption must ensure that all prongs of said exemption are satisfied.

Barring any significant changes to the duties performed and/or terms and conditions of employment, sales employees who satisfied the “primary duty” test prior to the COVID-19 pandemic, should be able to continue to satisfy this test today. In Gold v. New York Life Insurance Co., the Second Circuit noted that the “determination of an employee’s primary duty must be based on all facts in a particular case, with the major emphasis on the character of the employee’s job as a whole.”8 This means the duties the employee actually performs, not the employee’s title or position.9 Courts will consider several factors including, but not limited to,

1. “the relative importance of the exempt duties as compared with other types
   of duties;
2. the amount of time spent performing exempt work;
3. the employee’s relative freedom from direct supervision; and
4. the relationship between the employee’s salary and the wages paid to other employees for the kind of nonexempt work performed by the employee.”10

The determination of whether an employee meets the outside salesperson exemption will also depend on whether the sales employee is “customarily and regularly engaged away from the employer’s place or places of business” in performing such primary duty.11 The Federal Regulations define “customarily and regularly” as greater than occasional, but less than constant.12 It further states that “[o]utside sales does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls. Thus, any fixed site,  whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business.”13

A recent case in the Eastern District of New York, Veracka v. MLD Mortgage Inc.14 addressed this issue. In Veracka, the Court denied the defendants’ motion for summary judgment, finding that the employer failed to satisfy its affirmative defense that the plaintiffs were subject to the outside sales exemption.

With respect to the second element, the Veracka court stated that sales calls made from home “do not constitute work ‘away from’ the office.” Indeed, to meet the exemption, the employee must regularly be away from the place of business, meeting with customers outside of work, an employee’s home does not satisfy the requirement.15

Based on the foregoing, employers who classify any employees as exempt outside sales employees need to carefully examine whether each  individual employee satisfies the FLSA and NYLL. In the post-pandemic world, where some customers may still be unwilling to allow visits by salespeople to said customers’ business locations and employees request to work from home, employers hoping to avoid liability for misclassifying employees will have to stay vigilant and routinely assess whether an individual employee is exempt as an outside sales employee. Employers who classify their employees as  exempt outside salespeople should also be reminded to keep records and documentary evidence that support such classification. Such documentary evidence may include, but not be limited to, any agreement establishing terms of employment including, without  limitation, job duties and compensation,16 expense receipts for travel to meet with clients, copies of sales presentations, travel logs and itineraries, reports filed by salespeople relating to sales activity, and records referencing where sales are made.

However, employees who do not satisfy the requirements for the outside sales exemption, may qualify for another exemption under the NYLL and FLSA. As with the outside sales exemption, employers will have to carefully examine whether each employee satisfies all the requirements for any other exemption.

The COVID-19 pandemic brought sweeping changes to the way employers operate their business. Sales employees who were previously exempt from minimum wage and overtime requirements may no longer qualify for the outside sales exemption. Employers who currently classify employees as exempt outside salespersons should review the circumstances surrounding each employee’s duties and determine whether that employee still qualifies for the exemption or another exemption. Employers should perform the same analysis for each new hire. Failing to properly classify and compensate employees can expose employers to significant liability and employers should consult with employment law attorneys regarding their wage and hour practices to avoid costly litigation.

1. NYLL §651(5)(c).
2. 29 U.S.C. §213(a)(1); see also https://www.dol.gov/agencies/whd/fact-sheets/17f-overtime-outside-sales.
3. Fernandez v. Zoni Language Centers, Inc., 858 F.3d 45, 48 (2d Cir. 2017) (“Because the FLSA is remedial litigation, we construe its exemptions narrowly and place the burden on the employer to show that his establishment is ‘plainly and unmistakably within the [] terms and spirit’ of the exemption.”).
4. “Primary duty” means “the principal, main, major or most important duty that the employee performs.” 29 C.F.R. §541.700.
5. 29 C.F.R. §541.500.
6. 29 C.F.R. §541.500.
7. 12 N.Y.C.R.R. § 142-2.14(c)(5). The New York regulations follow the FLSA exemption. See 12 N.Y.C.R.R. §142-2.2 (“An employer shall pay an employee for overtime at a wage rate of one and one-half times the employee’s regular rate in the manner and methods provided in and subject to the exemptions of sections 7 and 13 of 29 USC 201”); see also Sydney v. Time Warner Entertainment-Advance/Newhouse Partnership, 751 Fed. App’x 90, 92 (2d Cir. 2018).
8. Gold v. New York Life Insurance Co., 730 F.3d 137 (2d Cir. 2013).
9. Gold, 730 F.3d at 145.
10. Sydney v. Time Warner Entertainment-Advance/Newhouse Partnership, 751 Fed. App’x 90, 92 (2d Cir.2018).
11. 29 C.F.R. §541.500.
12. 29 C.F.R. §541.701.
13. 29 C.F.R. §541.502.
14. Veracka v. MLD Mortgage Inc., Case No. 16-CV- 7152 (WFK) (AYS), 2021 WL 2662007 (E.D.N.Y. Apr.1, 2021).
15. Veracka, supra at *5.
16. Although outside the scope of this article, employers should be aware that NYLL §191(1)(c) requires that terms of employment with a “commission salesperson” must be memorialized in a written agreement signed by the employer and the “commission salesperson.” Such written agreement must contain, among other things, a “description of how wages, salary, drawing account, commissions and all other monies earned and payable shall be calculated” and “the details pertinent to payment of wages, salary, drawing account, commissions and all other monies earned and payable in the case of termination of employment by either party.” See NYLL §191(1)(c). For the definition of “commission salesperson,” see NYLL §190(6). Employers should also note that a commission salesperson is subject to overtime pay requirements, unless an exemption is applicable.

 

This article was published in the Nassau Lawyer in October, 2022.