Court Rules Outside Salesperson Exemption Turns on Employer Control
Court Rules Outside Salesperson Exemption Turns on Employer Control

Until recently, employers had the luxury of interpreting the outside salesperson exemption to minimum wage, overtime and meal and rest period requirements at face value.  This is because the definition of an “outside salesperson” is simply codified as “any person, 18 years of age or over, 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.” 

However, in Espinoza v. Warehouse Demo Services, Inc., California’s Court of Appeals determined that “away from the employer’s place of business” means something more than “away from the employer’s physical place of business.”  The relevant inquiry is the extent of the employer’s control over the salesperson while the salesperson works away from the employer’s place of business.  Quoting from a 1998 Department of Labor Standards Enforcement (DLSE) Opinion, the court explained:

Outside salesmen have historically been exempt because it’s very difficult to control their hours and working conditions.  They set their own time, and they’re on the road, they call on their customers … [R]arely do you know what they’re doing on an hour-to-hour basis.  (Internal quotations omitted).

Espinoza, however, presented the court with a set of facts unique to this historical assumption.  There, the employer, Warehouse Demo Services, Inc., had its own space in a property owned or leased by Costco, which set aside a designated area for Warehouse Demo Service to have its employees sell its services and products.  In addition, Costco was the only place Warehouse Demo Service conducted business via its demonstration of its products.  Additionally, while it leased no space within Costco, Warehouse Demo Services maintained an office inside each warehouse where its employees clocked in and out, stored and cleaned equipment, and handled paperwork.  Finally, unlike the typical traveling salesperson who sets his or her own hours and decides when and where to work, Warehouse Demo Services set its employees’ schedules every week, which did not vary and were not subject to the employees’ discretion.  Based on these facts, the court concluded: “the exemption was not intended to apply to employees like [Espinoza] whose hours, schedule, and (exact) location of work are controlled by their employer.”

California employers know all too well that, whether as a result of court interpretation or legislative agenda, California’s employment laws are becoming more and more protective of employees.  It is therefore imperative that employers strive to continuously review and update their employment practices to comply with new employment law developments.  Experienced employment counsel should be consulted on a regular basis to assist with this process, and reduce the potential for costly litigation.


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