A couple of recent posts via the excellent Compensation Force blog and the Ohio Employer's Law Blog really got my attention.

The 2nd Circuit Court of Appeals made a decision on Fair Labor Standards Act (FLSA) exemptions for sales persons that could potentially affect thousands of employers, eventually.

Until now, determining exemption status for sales professionals was fairly straightforward. The short and simple version is that "outside" sales persons who work primarily in the field (outside of the office) and who engage in selling maybe classified as exempt, while "inside" sales is virtually always non-exempt from the overtime provisions of the FLSA.  Sometimes where the distinction is not so clear, some sales persons can be classified as exempt under the administrative exemption of the FLSA, so long as the employees in question have significant discretion and independent judgement in their roles (it's more complicated than that, but this is Cliff Notes version).

First some background: Jon Hyman, in a post on his great Ohio Employer's Law Blog, calls the 33 page opinion (Novartis Wage and Hour Litigation) a must-read for any business that employs salespeople and pays them as exempt.  Here are the highlights of Jon's post:

Outside sales exemption: The (Novartis) sales reps do not qualify for the outside sales exemption because they do not actually sell any products. Instead, in their brief sales calls on physicians, they merely promote their employer's product. The physician cannot neither buy directly from the rep, not commit to making a purchase. In sum, where the employee promotes a pharmaceutical product to a physician but can transfer to the physician nothing more than free samples and cannot lawfully transfer ownership of any quantity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase, and cannot  lawfully even obtain from the physician a binding commitment to prescribe it, we conclude that … the employee has not in any sense … made a sale.

Administrative employee exemption: The sales reps do not qualify for the administrative employee exemption because their jobs lack the exercise of discretion and independent judgment. Specifically, the court pointed to the reps' lack of any role in planning marketing strategies or formulating the core messages delivered to doctors, inability to deviate from the promotional core messages or to answer any questions for which they have not been scripted, and quotas for doctors' visits, sales pitches, and promotional events.

At this point you might be thinking to yourself "So what? We're not a pharmaceutical company!"  If you leave it at that, you'll be missing some potentially important distinctions here.  For instance, what about "relationship selling," where the primary role is to get other companies/customers interested in your product or service, but the sales person doesn't really sell, directly at least? What about account managers, who often have the primary role to manage relationships with existing customers, but may do little or no direct selling? What about product "evangelists," that are common in software and other technology companies?

If you have exempt sales persons who may not explicitly meet the sales exemption test of the FLSA, or if you're not sure, you should contact your labor/employment attorney for a qualified opinion in light of this game-changing court decision.