In an important decision that explains the distinction between promoting and making sales, the Eleventh Circuit held recently that a marketing executive was exempt from the overtime and minimum wage provisions of the Fair Labor Standards Act as an outside salesperson. The case is Gregory v. First Title of America, Inc., Case No. 08-10737 (11th Cir., January 27, 2009).
Before addressing the facts of the case and the Eleventh Circuit’s holding, let’s review the applicable statute and regulations. The FLSA includes several exemptions from its minimum wage and overtime requirements, including any employee employed in the capacity of an outside salesperson, as defined by the Secretary of Labor. See 29 U.S.C. § 213(a)(1).
The Department of Labor defines “outside sales employee” as any employee whose primary duty is (i) making sales within the meaning of section 3(k) of the Act, or (ii) 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 (2) Who is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty. 29 C.F.R. § 541.500(a).
29 C.F.R. section 541.501 defines “making sales or obtaining orders” as follows:
(b) Sales within the meaning of section 3(k) of the Act include the
transfer of title to tangible property, and in certain cases, of tangible
and valuable evidences of intangible property. Section 3(k) of the Act
states that ‘sale’ or ‘sell’ includes any sale, exchange, contract to sell,
consignment for sale, shipment for sale, or other disposition.
(c) Exempt outside sales work includes not only the sales of
commodities, but also ‘obtaining orders or contracts for services or for
the use of facilities for which a consideration will be paid by the client
or customer.’ Obtaining orders for ‘the use of facilities’ includes the
selling of time on radio or television, the solicitation of advertising for
newspapers and other periodicals, and the solicitation of freight for
railroads and other transportation agencies.
(d) The word ‘services’ extends the outside sales exemption to
employees who sell or take orders for a service, which may be
performed for the customer by someone other than the person taking
Promotional work is addressed in 29 C.F.R. § 541.503. Promotional work may or may not be exempt outside sales work, depending on the circumstances under which it is performed. “Promotional work that is actually performed incidental to and in conjunction with an employee’s own outside sales or solicitations is exempt work” whereas “promotional work that is incidental to sales made, or to be made, by someone else is not exempt outside sales work.” 29 C.F.R. § 541.503(a).
Now for the facts and the Eleventh Circuit’s holding. First Title of America, Inc. (“First Title”) is a title marketing company based in Lake Mary, Florida. The plaintiff, Nelda Gregory, was a “marketing executive” for First Title who was hired due, in large part, to her prior experience in selling insurance. According to the Employment Agreement executed between the parties, her job description was to “provide the services for referring and closing title insurance companies.”
Under the terms of the Employment Agreement, Gregory initially was paid $1000 per week. At Gregory’s suggestion, she later began to be paid on a commission basis and received a fifty percent commission on all orders for title insurance from her clients that closed with First Title. Gregory claimed that although she often worked more than forty hours per week, she was never compensated for her overtime.
Gregory argued that she did not fall within the FLSA’s outside sales exemption because she was employed by First Title as a marketing representative and she never actually consummated a sale during her employment. Gregory contended that she was tasked only with inducing realtors, brokers and lenders to begin referring their customers – the end user – on to First Title for title insurance services. She maintained that she never directly sold title insurance or title insurance services to anyone because she was not licensed to do so. In short, Gregory asserted that she was employed only to promote First Title’s services and to stimulate sales and was never involved in the actual sale of title insurance to the realtors, brokers and lenders, or to the end users.
First Title argued that Gregory’s primary duty was bringing in or obtaining orders for First Title and that her compensation was tied directly to orders for title services that ultimately closed. First Title cited to language from the Preamble to 29 C.F.R. Part 541 discussing recent modifications to § 541.403 (Promotion Work), in which the DOL remarked that:
[T]he Department agrees that technological changes in how orders are taken and processed should not preclude the exemption for employees who in some sense make the sales. Employees have a primary duty of making sales if they ‘obtain a commitment to buy’ from the customer and are credited with the sale.. . . . Exempt status should not depend on whether it is the sales employee or the customer who types the order into a computer system and hits the return button. The changes to proposed section 541.503(c) are intended to avoid such a result.
Thus, First Title argued that that how the order is placed is immaterial – the inquiry should focus on the efforts of the salesperson. If those efforts were directed toward the consummation of her own sales as opposed to stimulating the sales of the company in general, then the employee is exempt.
Agreeing with First Title, the Eleventh Circuit concluded that Gregory’s primary duty was to obtain orders for First Title’s title insurance services, i.e., bring in orders. The court noted that the bulk of Gregory’s time was spent away from the office, free from direct supervision and performing work that could not be conclusively characterized as nonexempt.
Addressing Gregory’s argument that her work was “stimulating sales” as opposed to “obtaining orders for services,” the court concluded that “Gregory did, indeed, make a sale in some sense.”
She obtained commitments to buy orders for First Title’s title insurance service and, most importantly, was credited with the sale. She was hired for her prior sales experience and brought a book of clients with her to First Title. Not long after being hired, Gregory’s sole source of income was directly tied to the number of orders that she brought in. She listed her clients for the Appellees and received credit (and payment) only for those orders placed by her clients that closed. All of her efforts were directed towards the consummation of her own sales and not towards stimulating sales for First Title in general.
The court also noted that Gregory did not merely “pave the way” for other salespeople. “Gregory did not collect orders and turn them over to another salesperson nor does the record contain evidence of any other intervening sales effort between Gregory and orders placed with First Title[,]” the court noted. “As opposed to conceiving of Gregory as “paving the way” for others to consummate the sale, we view her as acting more as a conduit through which orders for services flowed. Gregory received credit and payment for those orders that flowed through her to First Title.”
The Gregory decision is significant, as there are undoubtedly thousands of sales and marketing employees within the Eleventh Circuit (Florida, Georgia and Alabama) who “obtain a commitment to buy” from the customer and are credited with the sale, but who do not actually place the order for the sale. Gregory makes clear that such facts do not necessarily preclude the application of the outside sales exemption.
A caveat: Employers should keep in mind that courts generally construe exemptions to the FLSA narrowly. Before classifying any employee as exempt under one of the “white collar” exemptions, careful attention must be paid to the employee’s actual job duties and the tests set forth by the DOL.