Q: Are outside sales employees considered exempt under the outside sales exemption (OSE) if they work from a home office during the pandemic?
A: Throughout the last 11 months, the pandemic has required most in-person business activity to go virtual; and this is no less true for employees working in sales. However, Zoom meetings and social distancing have made it challenging for employers to classify their sales force as exempt under the OSE of the Fair Labor Standards Act (FLSA).
The OSE provides a broad exemption from the minimum wage, overtime pay, and recordkeeping requirements of the FLSA. The exemption does not require a minimum salary amount or payment on a salary basis. Rather, it merely requires that an employee’s primary duty be related to sales and that the employee be “customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.” 29 C.F.R. § 541.502. Accordingly, the OSE creates a significant degree of flexibility in the terms of employee compensation.
However, the requirement that the employee be “customarily and regularly engaged away from the employer’s place of business” may be jeopardized when sales employees are closing deals from a home office. Indeed, the OSE treats any fixed site as the employer’s place of business. That means the “employer’s place of business” includes the employee’s home office, because “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, even though the employer is not in any formal sense the owner or tenant of the property.” 29 CFR § 541.502.
While this rule made sense prior to the pandemic, it appears to foreclose the OSE exemption, where sales employees cannot visit customers physically due to the pandemic. Unfortunately, the U.S. Department of Labor (DOL) has yet to step in and clarify what allowances should be made to the OSE due to the restrictions imposed by COVID-19.
Notably, those sales employees physically able to visit at least some customers may still be able to take advantage of the OSE exemption. While the door-to-door salesperson is perhaps the classic example of an OSE employee, the exemption requires far less time spent outside the employer’s place of work than a door-to-door salesperson might ordinarily expend. Indeed, the DOL has concluded that selling or sales-related activity outside the office for “one or two hours a day, one or two times a week” can satisfy the requirements of the exemption. See DOL Wage Hour Op. Lts. No. FLSA2007–2 (Jan. 25, 2007), reaff’d, FLSA2020-6 (June 25, 2020). In FLSA2020-6, the DOL even observed that “performing an activity 60 times over the course of a year — slightly more than once per week — may be enough[.]” Id. at *3. Courts have observed that there is no suggestion in the regulations that work performed customarily or regularly must occupy any given percentage of an employee’s working hours.
For those sales employees performing all of their work remotely during the pandemic, however, the application of the OSE exemption is less clear. While many expect the DOL would not attack an employer’s reliance on the OSE because of the employer’s compliance with public health mandates, nonetheless the exemption is far from assured. Accordingly, employers may wish to carefully consider alternative bases for claiming FLSA-exempt status or reclassify sales employees for the remainder of the pandemic or until further guidance is provided. In determining whether another exemption (e.g., the administrative exemption) would apply, employers will have to keep in mind the salary threshold requirement that is not necessary for the OSE exemption.