Atlanta Employment Attorneys Blog
According to the U.S. Bureau of Labor Statistics, more than 13.3 million people held jobs in sales and related occupations in May 2023. This group includes, for purposes of the Fair Labor Standards Act’s minimum wage and overtime requirements, both exempt and non-exempt employees. Employers should proceed carefully in classifying their sales workers, as misclassification can result in steep financial consequences. If you have questions about categorizing your sales workers (or about your own sales job,) it is well worth your while to consult an experienced Atlanta wage and hour lawyer to ensure you are getting knowledgeable and reliable advice.
That array of 13.3 million sales workers can be divided into two broad groups: “inside” sales and “outside” sales. “Inside sales” generally refers to workers who sell remotely, such as via the telephone or the Internet, whereas “outside sales” typically refers to workers who meet customers face-to-face. For purposes of FLSA classification, inside sales workers generally are non-exempt while outside sales employees are generally exempt.
An inside sales worker can be exempt if the realities of their job place them within one of the law’s recognized exemptions, but employers should tread cautiously before trying to “shoehorn” their inside sales employees into an exemption. Misclassification errors are often very costly, as a recent unpaid overtime case from New England illustrates.
The employer was a Massachusetts-based wholesale distributor of engineering and construction products and employed more than 600 “inside” sales representatives. The company classified its inside sales representatives as exempt employees under the “administrative exemption.”
Section 13(a)(1) of the FLSA exempts administrative, executive, and professional employees… as well as outside sales workers. To qualify as an exempt administrative employee, the worker’s primary duty “must be the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers,” and must include “the exercise of discretion and independent judgment with respect to matters of significance.”
The U.S. Department of Labor’s lawsuit against the company alleged that the representatives did not fall within the administrative exemption and the employer violated the law when it failed to pay those workers overtime compensation.
The trial court ruled against the employer, determining that the company’s “core business purpose was to sell its products” and the representatives’ primary duty was to make sales. Given those facts, the representatives did not meet the criteria of the administrative exemption and the employer erred in classifying them as exempt.
Performing Versus Supporting the Employer’s Primary Business Activities
The federal appeals court in Boston agreed with the lower court. The FLSA and its related regulations make it clear that a qualifying administrative worker must engage in a supporting or ancillary role, versus playing a primary role in carrying out the employer’s primary business. In the case of a sales organization, a qualifying administrative employee might work in finance/accounting/auditing, purchasing/procurement, human resources, employee benefits, advertising, legal compliance, and so forth. Performing these tasks does not result in sales, but supports those engaged in that task.
In this case, the representatives were not supporting the workers who made the sales… they were the ones who made the sales. The employer “is a wholesaler, and [the representatives] make those wholesales. Their primary duties are not ‘administrative’ in any sense of the word,” the appeals court succinctly summarized.
Based on the trial court’s earlier judgment, the employer’s misinterpretation of the administrative exemption and misclassification of these representatives will cost more than $3 million.
Although this case played out in Massachusetts, the legal standards – and the stakes of misclassification – are the same here in Georgia. Classification mistakes – whether exempt versus non-exempt or employee versus independent contractor – can lead to costly federal litigation, whether you are in North Georgia or New England. To avoid this outcome, you need legal counsel that can help you prevent potential liability issues. The knowledgeable Atlanta wage and hour attorneys at the law firm of Parks, Chesin & Walbert possess a deep and fully up-to-date understanding of the law governing classification and work tirelessly to ensure clients have a complete awareness of their rights and obligations. Contact us today at 404-873-8048 or through this website to schedule a consultation to find out more.