Outside Sales Exemption Applies to Mortgage Loan Officer

Exemptions under the Fair Labor Standards Act (“FLSA”) continue to be the source of much litigation in our district and across the country.   Last month, the Eastern District of Virginia tackled the outside salesperson exemption and found that a mortgage loan officer qualified for the exemption, even though she spent only about 25-30% of time out of the office selling and didn’t necessarily close deals outside of the office.  See Hartman v. Prospect Mortgage, LLC, Case No. 1:13cv1432 (E.D. Va. January 7, 2014).

The plaintiff, a mortgage loan officer, claimed that her employer had improperly classified her as an exempt employee under the FLSA and thus failed to properly pay her overtime.   The employer moved for summary judgment, arguing that the plaintiff was exempt from overtime and minimum wage requirements under the FLSA under the “outside salesperson” exemption.   The district court granted summary judgment, finding that the plaintiff qualified for the exemption and thus her FLSA claims failed as a matter of law.

The FLSA generally requires that an employer must pay employees overtime for all hours worked over forty.  However, there are exemptions set forth in the FLSA, including an “outside salesperson” exemption.  Basically, there are two parts to the exemption set forth in the federal regulations—that the employee is engaged in selling, as defined by the FLSA, as a primary duty and that the selling is customarily and regularly occurring outside of the office or place of business. See 29 C.F.R. § 541.500(a).

In Hartman, the court’s focus was on whether the mortgage loan officer position satisfied the second of these two requirements.  As the court explained, according to federal regulations, “the phrase ‘customarily and regularly’ means a frequency that must be greater than occasional, but which, of course, may be less than constant” and includes “work normally and recurrently performed every workweek,” but not “isolated or one-time tasks.” 29 C.F.R. § 541.701. The regulations further address what it means to be “away from the employer’s place or places of business,” providing that an outside sales employee is one “who makes sales at the customer’s place of business or, of selling door-to-door, at the customer’s home” and that “[a]ny fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business.”  29 C.F.R.  § 541.202.

Noting that the defendant bore the burden of establishing that the outside sales exemption, the Hartman court concluded that it had met that burden.  The court explained that “[t]he phrase ‘customarily and regularly’ is not a majority of the time test.”  Hartman, p. 10 (citing Lint v. Nw. Mut. Life Ins. Co., No. 09CV1373, 2010 WL 4809604, at *3 (S.D. Cal. Nov. 19, 2010)).   The court also pointed out that the Department of Labor has concluded that “one or two hours a day, one or two times a week” qualifies as customarily and regularly.  See id., p. 8 (citing DOL Wage Hour Op. Ltr. No. FLSA2007-2 (Jan. 25, 2007).

Here, the deposition testimony revealed that the plaintiff spent about 25-30% of her typical week outside the office making contacts to bring in business.  She attended open houses, auctions, closings, settlements, and chamber of commerce meetings and spent several hours a month creating marketing materials.  The plaintiff also met with other professionals to generate business.  “Although her outside work was not constant, it is sufficient to satisfy the exemption.”  Id., p. 11.   The court also noted the DOL’s conclusion that mortgage officers performing the type of duties as the plaintiff qualified for the exemption.   Further, the court rejected plaintiff’s argument that the exemption was inapplicable because there was no evidence that she made any sales to a borrower at his or her home or place of business, finding that the regulations do not limit the exemption to employees that actually consummate sales at the customer’s home or place of business.  Id., p. 13.  Finally, the court also did not find convincing plaintiff’s argument that her outside activities were only promotional work and thus did not satisfy the outside sales exemption, explaining that “the exemption plainly covers outside promotional work irrespective of if the efforts result in actual sales.”  Id., pp. 13-14.

For employers, this decision provides some assurance that even your outside salespeople who spend a substantial amount of time in the office can still qualify for the outside sales exemption-so long as they spend sufficient time out of the office in selling capacity.