“Brand representatives” who demonstrated products and provided free samples at retail stores were exempt from overtime requirements under the Fair Labor Standards Act, a U.S. District Court judge in Massachusetts has decided.
Defendant Summit Retail Solutions sent the plaintiff employees to wholesale clubs, supermarkets and department stores to pitch products to store customers. Customers did not buy the products directly from the plaintiffs; instead, they paid for them at store cash registers along with other merchandise.
Summit paid the plaintiffs wages of $10 to $15 an hour. Additionally, it paid a “calculated commission” based on product purchases, though the plaintiffs described the commissions as frequently negligible.
When the plaintiffs alleged in a putative class action that they were nonexempt employees entitled to overtime pay, Summit argued that the plaintiffs fell within FLSA’s “outside sales exemption.”
Judge F. Dennis Saylor IV agreed.
“[B]ecause the undisputed facts show both that plaintiffs’ primary responsibility was making sales and they were regularly away from defendant’s regular place of business in performing that duty, the OSE applies, and they are not subject to the overtime requirements of the FLSA,” Saylor wrote, granting Summit’s motion for summary judgment.
The 27-page decision is Modeski, et al. v. Summit Retail Solutions, Inc., et al.
‘Clear and flexible’
Defense counsel Barry J. Miller of Boston said the decision provides clarity regarding what constitutes “making sales” for OSE purposes, while interpreting the law in a “black and white, clear and flexible” manner.
“A decision like this provides you some insulation against wage-and-hour claims by workers outside your line of sight who you can’t see or monitor effectively,” Miller said. “A ruling the other way would have created an obligation [for an employer] to affirm somehow that people you’re unable to effectively monitor were complying with its directives about timekeeping, which is a very hard thing to do.”
“A decision like this provides you some insulation against wage-and-hour claims by workers outside your line of sight who you can’t see or monitor effectively.”
— Barry J. Miller, Boston
Plaintiffs’ counsel Benjamin L. Davis III of Baltimore declined to comment other than to say that his clients were disappointed with the decision and that they were considering an appeal.
However, Boston attorney Hillary Schwab, who represents employees in wage-and-hour class actions, said workers like the ones in Modeski are not whom the OSE was meant to cover.
“The workers are low-paid hourly workers whose hours, duties and location of work are entirely dictated to them by their employer,” Schwab said. “They have none of the discretion or flexibility of true salespeople.”
In fact, Schwab said, Modeski is factually similar to cases that have gone the other way in that the employees worked in retail stores, had only fleeting contact with customers, and did not work in a unique regulatory environment.
At the same time, Schwab said, Saylor’s expansive characterization of what constitutes “retail sales” could actually have a pro-employee impact in Massachusetts. While it would not help the workers here, it could theoretically make non-exempt workers who perform tasks related to marketing or selling products without actually consummating the sale workers in a retail establishment eligible for Sunday pay.
Christopher B. Kaczmarek, a management-side employment attorney in Boston, said that while it may seem odd for employees who do not actually make sales to qualify for the outside salesperson exemption, the decision was pre-determined by the U.S. Supreme Court’s 2012 ruling in Christopher v. SmithKline Beecham Corp.
That case involved pharmaceutical sales reps who could not legally sell pharmaceuticals but whose job entailed persuading doctors to buy them. The Supreme Court found that those reps, who were trained in sales techniques and compensated based on sales attributable to them, fell within the exemption.
“In this case, although the plaintiffs worked in a very different physical environment — big box stores — than pharmaceutical sales representatives, their job duties were similar,” Kaczmarek said. “As one of the plaintiffs [in Modeski] testified, their job was ‘to convince somebody to buy a product, to pay for it that day, and walk out of the store with it.’”
Ultimately, Saylor rejected a formalistic approach to the OSE and instead focused on the nature of the plaintiffs’ sales efforts in the context of their industry, Kaczmarek said.
“In this particular retail setting, the best that the plaintiffs could do was obtain a nonbinding commitment to purchase the product by putting it in their cart, [and so] they were engaged in ‘sales’ for the purpose of the exemption,” he said.
Demos and samples
The plaintiffs worked as brand representatives for Summit between 2014 and 2019, demonstrating products and interacting with customers at stores of Summit clients, primarily wholesale clubs such as BJ’s, Costco and Sam’s Club.
At each store, brand reps marketed a particular product — such as a household or prepared food item — at a designated display area, typically for four days at a time. Generally, Summit, not the retailer, purchased and owned the products, which were not part of the store’s normal inventory and were available only at the display.
Brand reps would typically model the use of household products for customers while offering free samples of food products. The reps also used selling techniques to persuade customers, such as telling them it was the last day they were showing that product, so as to convey urgency, or “assuming the sale” by placing the product in the customer’s cart.
Customers did not, however, purchase the products directly from the brand rep. Instead, they bought them at store cash registers operated by store employees.
Additionally, customers would not necessarily purchase the product after taking it from the brand representative. Sometimes they would take it out of their cart before reaching the register.
Similarly, customers occasionally took products from the display themselves without interacting with the brand rep.
The reps themselves were compensated through a base wage of $10 to $15 an hour plus “calculated commissions.” Summit calculated the commission by taking a percentage of sales made at a client’s register for products it marketed and comparing it with the brand rep’s hourly wages.
If the calculated commission exceeded the rep’s hourly wage, the rep received a “true up” payment. If it fell short, however, the rep was docked the difference from future commissions.
The plaintiffs claimed they received minimal true-up payments. Summit claimed they were paid regularly. But the payments often made up a relatively small share of compensation. For example, in 2015, one of the plaintiff’s commissions accounted for roughly 4 percent of his compensation from Summit.
Summit also set reps’ schedules, chose their client locations, and required them to record their hours and report them to managers.
In 2018, the plaintiffs filed a putative class action in U.S. District Court in Maryland alleging FLSA violations. The case was moved to Massachusetts, where Summit moved for summary judgment, citing the outside sales exemption.
Saylor rejected the plaintiffs’ argument that they merely stimulated sales made by others and thus their primary duty was not “making sales” within the meaning of FLSA.
In doing so, he distinguished their situation from federal appellate rulings that did not apply the OSE.
For example, in, Killion v. KeHE Distributors, LLC, a 2014 decision from the 6th U.S. Circuit Court of Appeals, the “sales representatives” in question spent most of their time overseeing the stocking of products, not pitching them to customers, Saylor noted.
Similarly, the 8th Circuit’s Beaufort v. ActionLink, LLC case in 2014 involved “brand advocates” who trained retail employees on their products and convinced them to recommend those products to customers but did not sell directly to customers themselves, Saylor pointed out.
“What separates [this case] is that plaintiffs here routinely marketed products directly to customers, attempting to convince them to make a purchase,” the judge said.
Regarding the fact that customers were not guaranteed to purchase products they placed in their cart, Saylor noted that under Christopher a “nonbinding commitment” counts as a sale when obtaining such a commitment is the most an employee can do within that particular employment context.
Accordingly, Saylor concluded, summary judgment should be granted.