Door-to-Door Salesmen Not Entitled to Overtime Pay under Fair Reading of FLSA, Second Circuit Finds

October 01, 2018

Acknowledging its obligation to give a “fair reading” to all Fair Labor Standards Act (FLSA) overtime exemptions, as the U.S. Supreme Court stated recently, the U.S. Court of Appeals for the Second Circuit concluded that door-to-door salespersons for an energy supply company fit squarely within the FLSA’s outside sales exemption to overtime pay. The FLSA exempts from its minimum wage and overtime requirements anyone who is an “outside sales” employee. To qualify for this exemption, an employee must have the primary duty of making sales or of obtaining orders or contracts for services. In addition, the employee must customarily and regularly work away from the employer’s place of business. The Second Circuit held the exemption applies even if a door-to-door salesperson, who makes the sale and takes the order for the sale, might have that order reviewed by the company prior to the order being finalized. SESCO has a long history of ensuring that employers are compliant with federal and state wage and hour requirements. If employers have any questions or concerns about their pay practices, we recommend they contact us to ensure compliance.

Kevin Flood and his putative class were employed by a group of affiliated energy supply companies (collectively, “Just Energy”) to engage in door-to-door solicitation. The salesperson’s goal was to persuade customers to buy their electricity or natural gas from Just Energy, rather than a local utility. If the salesperson successfully pitched the services, the customer filled out a service agreement. The sale was subject to further review based on customer credit and other business concerns. The sale was not finalized until the customer completed a verification call with a third party to ensure the customer understood and agreed to switch from the utility to the company’s services.

Following his departure from the company, Flood filed suit against the company, claiming minimum wage and overtime violations under the FLSA and New York law. The district court dismissed the claims, finding Flood was not entitled to overtime pay under the outside sales exemption. Flood appealed and the Second Circuit affirmed the lower court decision.

Citing the plain language of the FLSA regulations, and applying the “fair reading” dictated by Encino Motorcars, the Second Circuit had little trouble concluding that (a) Flood’s primary duty was making sales (or, alternatively, obtaining orders or contracts for Just Energy’s services), and (b) Flood regularly worked away from Just Energy’s offices.

While some of the customers Flood signed up ultimately did not receive the company’s services (e.g., example, because they lacked sufficient creditworthiness, they changed their minds, or they were unable to change energy providers due to a “slam block” on their account), the only reason customers ever received, or intended to receive, the company’s services was because of Flood’s sales efforts. As the Second Circuit noted, “[T]he outside salesman exemption does not require that the employee have the ultimate authority to bind the customer or close the deal. It is enough that the employee secures a customer’s commitment to engage in a sales transaction as the term ‘sale’ is broadly defined by the law.”

Moreover, while Flood received some level of supervision and was required to attend regular meetings at company headquarters, the Court said it was not controlling in determining whether he was engaged in “sales” and covered by the exemption.