by Jourdan D. Day

Door-to-door solicitors weren’t subject to the “outside salesperson” exemption under the Fair Labor Standards Act (FLSA), the U.S. 6th Circuit Court of Appeals (which covers employers in Kentucky, Michigan, Ohio, and Tennessee) recently decided, affirming a jury verdict.

Facts

A group of employees went door-to-door to solicit customers for Commerce Energy, Inc., an energy supply company that provides electric power and natural gas. They were paid solely on a commission basis and didn’t receive a minimum wage or overtime. A typical day began with a morning meeting at the employer’s facility before supervisors drove them into the field for the door-to-door sales. Field supervisors controlled all their work breaks.

When the employees met with a potential customer, they were obligated to follow a script. If the customer was interested in the employer’s product, they completed a signed “customer agreement,” which was nonbinding. They then placed a verification call to a third party from the premises using the customer’s phone to confirm the agreement.

Even after the verification call, the sale wasn’t final. Commerce was able to reject any contract submitted by an employee at its sole discretion. Often, they weren’t told why the applications were rejected or why they weren’t paid commissions. Evidence submitted at trial showed 69% of employees made less than $1,000 and 62% made less than $500 in compensation, and some earned nothing despite submitting customer agreements to the employer every day.

The door-to-door solicitors filed a collective and class action lawsuit in federal court in Ohio, alleging Commerce misclassified them as exempt outside salespeople under the FLSA and the Ohio Minimum Fair Wage Standards Act (OMFWSA). The court certified the class of employees and denied the employer’s request for summary judgment (dismissal without a trial).

The jury determined Commerce was liable for minimum wage and overtime pay under the FLSA and the OMFWSA because door-to-door solicitors weren’t covered by the outside salesperson exemption. The employer filed requests for a directed verdict and judgment as a matter of law, which were denied. It appealed those denials.

Court’s Decision

On appeal, the 6th Circuit reviewed the outside sales exemption in the context of the specifics of the workplace in which the employees performed their duties. Analyzing the U.S. Department of Labor’s (DOL) regulations, the court first determined whether they were “making sales.” Relying in particular on the fact Commerce retained the authority and discretion to finalize all sales, and employees were often not informed why a particular application was rejected, the court found the jury’s determination they weren’t “making sales” was reasonable based on the evidence and testimony.

The court next considered whether the employees were “obtaining orders or contracts for services.” It previously determined, however, electricity was a commodity, and the employer’s testimony at trial confirmed gas and electricity were commodities, not services. Accordingly, the employees weren’t obtaining orders or contracts for services.

Finally, the court determined there wasn’t enough evidence to support the outside salesperson exemption because the employees were closely supervised and Commerce controlled their schedules, scripts, and interactions with customers. Based on the totality of the circumstances, the court found the employer’s requests for judgment as a matter of law and directed verdict were properly denied. The jury’s determination that the employer was liable for minimum wage and overtime wages was affirmed. Hurt v. Commerce Energy, Inc., 973 F.3d 509 (6th Cir., 2020).

Commerce asked the court to rehear the case, but the 6th Circuit concluded the issues raised were fully considered in the original decision. Hurt v. Commerce Energy, Inc., 6th Cir. No. 18-4058, 2020 U.S. App. LEXIS 31158 (Sept. 30, 2020).

Takeaways

Regardless of the applicable exemption, you should take the time to ensure all employees classified as exempt meet one of the FLSA exemptions from minimum wage or overtime. Auditing positions on a regular basis based on actual job duties and authority can help you avoid liability for unpaid minimum wages and overtime wages. In particular, employers with door-to-door salespersons should confirm those employees have the authority to make sales or are obtaining orders or contracts for services. Otherwise, you could lose the exemption and be liable for unpaid wages.

Jourdan D. Day is a senior associate in the Labor and Employment Department at Porter Wright Morris & Arthur, in Columbus, Ohio. She represents clients in labor negotiations and counsels clients regarding collective bargaining agreements, unfair labor practices and union avoidance matters. She can be reached at 614-227-1980 or jday@porterwright.com.