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Salesperson Not Subject to Administrative Exemption from Overtime Pay

by Jonathan C. Sterling

Because one of the most difficult tasks HR professionals face is determining whether their employees are exempt, each time a decision is issued on the topic by an appeals court, it’s worth noting and taking guidance from. The latest decision from the Second Circuit relates to the administrative exemption, which applies to certain employees who are afforded substantial discretion in their jobs.

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The Fair Labor Standards Act (FLSA) and Connecticut law both require that employees be paid time and a half for all hours worked over 40 in a given week. However, exceptions are made, including those for employees working in bona fide executive, administrative, or professional roles.

If you misclassify an employee as being in one of the exempt categories, she may be entitled to recover damages, including unpaid overtime, an equal amount in liquidated damages, plus attorneys’ fees and court costs.

If the misclassification is found to be willful, punitive damages are possible, and the court can base its damages award on three years of unpaid overtime, rather than on two years as in nonwillful cases.

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Selling ads isn’t administrating
In September 2002, Lynore Reiseck began working as a regional director of sales at Universal Communications of Miami in New York City. She was responsible for generating advertising sales from the travel and finance sectors in the northeastern United States and Canada for Universal’s magazine publication, Elite Traveler. She was paid a base salary plus commission, but no overtime.

She was fired from Universal in February 2004. Three months later, in May, she filed a lawsuit claiming, among other things, that Universal violated the FLSA and New York’s state wage and hour laws (which are very similar to the FLSA).

Universal asked the court for a ruling before trial that Reiseck was an exempt administrative employee or, alternatively, that she fell under the FLSA’s “outside salesperson” or “commissioned salesperson” exceptions. The court found that she was an exempt administrative employee and threw out the case. Reiseck appealed to the Second Circuit.

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Court’s decision
The Second Circuit explained that the FLSA’s administrative exemption applies to employees who perform work directly related to management policies or general business operations and who customarily and regularly exercise discretion and independent judgment in their job. However, the court found that Reiseck’s sales work, which consumed more than half of her time, wasn’t directly related to management policies or general business operations.

In reaching its conclusion, the court considered the U.S. Department of Labor’s (DOL) nonbinding interpretive regulations. The Second Circuit sent the case back to the trial court for a determination of whether the “outside salesperson” or “commissioned salesperson” exceptions, which the trial court never decided, applied. Stay tuned.

This is the second decision from the Second Circuit in the past few months making clear that not every employee who exercises discretion in carrying out her job duties will meet the requirements of the administrative exemption.

The FLSA’s exemptions are construed generously in favor of the employee, and sales and work related to production will not qualify. To determine whether an FLSA exemption is applicable, you must carefully analyze the employee’s job duties or, better yet, consult with an attorney with expertise in wage and hour matters. Misclassifying employees is serious business and can result in substantial liability if you make the wrong call, even if it’s unintentional.