Are Salespeople Exempt from Overtime under California Law?

Non-exempt workers earning an hourly wage in California are subject to state minimum and overtime requirements under California Labor Code sections 510 and 1194. However, there are some narrow exceptions which exempt these workers from these basic wage protections. One of these is the outside sales exemption, under Section 1171 of the California Labor Code.

The Industrial Welfare Commission (IWC) Wage Orders define an outside salesperson as a person who “customarily and regularly works more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.”

Fortunately for California workers, this is an area of law in which courts have decided that workers are more strongly protected under California law than under the similar federal exemption. The California Supreme Court considered the difference between California and federal law vis-à-vis the meaning and scope of the outside salesperson exemption in detail in Ramirez v. Yosemite Water Company (1999) 20 Cal.4th 785.

Ramirez involved an employee who delivered bottled water to customers and who was also expected to sell the water service to new customers. Id. at 790. The Ramirez court found that application of the outside salesperson exemption depends whether an individual spends more than half of his or her actual working hours selling or obtaining orders or contracts. Id. at 797. In doing so, the Court recognized “California’s distinctive quantitative approach to determining which employees are outside salespersons.” Id. at 801. In contrast, under federal law, the analysis boils down to whether sales is the employee’s primary duty- regardless of how much time is spent engaging in sales-related activity.

Under California’s approach, the Court found that the plaintiff performed both sales and delivery functions: “Delivery of preordered water bottles or the restocking of ‘empties’ is not a sales activity in the conventional meaning of the word—one who only performed these delivery tasks could not be considered a salesperson.” Id. at 802. The court further found that “intrinsically nonexempt nonsales work” cannot be reclassified as exempt simply because it is “incidental to sales.” Id. (original emphasis).

Ramirez thus directs trial courts to inquire into the “realistic requirements of the job” by considering the following factors: (1) First and foremost, how the employee actually spends his or her time; (2) Whether the employee’s practice diverges from the employer’s realistic expectations; (3) Whether the employer was dissatisfied with the employee’s substandard performance; and (4) Whether the employer’s dissatisfaction with the employee was realistic given the actual overall requirements of the job. Ramirez, 20 Cal.4th at 802. Ramirez also points out that an idealized job description that has little basis in reality will not prove an employee’s exempt status. Id. at 801-802.

While Ramirez clarifies California’s quantitative approach and provides a roadmap to assessing how an employee’s work time should be broken down, it doesn’t provide much insight on a key question- what exactly does it mean to be “selling” and “obtaining orders”? California regulations do not further define these key terms or provide any authoritative guidance, and California case law is not instructive in construing the terms “selling” and “obtaining orders.” See Brody v. Astrazeneca Pharms., LP (C.D. Cal. 2008) 2008 U.S. Dist. LEXIS 107301, *14.

However, federal cases have considered the important definitional aspect of “sales,” and have set forth the following factors to determine whether job functions involve selling: 1) whether the job was advertised as a sales position; 2) whether there was training in sales; 3) whether the compensation was commission-based; 4) whether the employee independently solicited new business; and 5) whether the employee worked with little supervision. Brody, 2008 U.S. LEXIS 107301 at 18.

So, if you are a salesperson, or consider yourself as someone who works in sales, you may want to consider whether that characterization is accurate, or if it is just blocking your right to earn overtime pay.

Hunter Pyle Law recently settled a class action brought on behalf of over 300 account managers in California who were wrongly classified as exempt outside salespeople by their employer.  We were able to recover significant unpaid wages for them.  If you have questions or concerns about whether you are correctly classified, call our office for a free consultation at 510.444.4400.