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FLSA Outside Sales Exemption: Recent Favorable Ruling for Employer

FLSA Outside Sales Exemption: Recent Favorable Ruling for Employer

Federal Court Rules Loan Officers are Exempt from Overtime

Prospect Mortgage faces more than one hundred cases on whether loan officers were exempt from the minimum wage and overtime provisions of the Fair Labor Standards Act (FLSA). Prospect has argued that the loan officers were exempt from the FLSA overtime provisions because the primary duties of the sales employees take them away from the office. On February 5, 2014, a jury in federal court in Alexandria, Virginia ruled in the company’s favor that a loan officer was exempt from the overtime provision. Prospect demonstrated to the jury by clear and convincing evidence that the employee was an outside salesperson.

FLSA Outside Sales Exemption

Under the FLSA to satisfy the outside sales exemption, an employee is 1) primarily engaged in sales; and 2) customarily and regularly engaged in sales or promotional work outside of the employer’s place of business. There was no dispute that the employer was engaged in sales, thus the only matter before the jury was how often was the employee outside the office. To support the argument that the employee spent time outside the office, Prospect presented the following evidence: 1) Prospect’s business model, 2) the employee agreement regarding outside sales activities, and 3) actual performance of the employee. Based on the foregoing evidence, the jury concluded that the loan officer was exempt from the overtime provision of the FLSA.

It May Not Matter Where the Papers Are Signed

Prospect also won motions for summary judgment that supported the trial outcome. In the first motion for summary judgment, the Court rejected the employee’s contention that only interactions with customers that occurred at the customer’s home or place of business were properly considered “outside”. The Court was willing to consider an interaction at a coffee shop or at an open house as “outside” of the employer’s place of business for purposes of the exemption. The court also explained that mortgage loans are a multi-step process and may have interaction inside and outside of the employee’s place of business. Irrespective of where the papers are signed, the loan officer undertakes “outside” activities. Thus, at the jury trial, the court articulated that a loan officer is an outside sales representative if he/she spent one or two hours a day, once or twice a week, knocking on doors and selling financial products. Relying on the standard first adopted in the motions for summary judgment, the jury found favorably for Prospect.

In a second motion for summary judgment, decided on the same day as the jury trial, the court rejected the employee’s argument that the employer should have individually assessed each of its mortgage loan officers’ duties before classifying them as outside sales representatives. The court explained that while exemptions to the FLSA are individually held, it is unrealistic to suggest that an employer is obligated to conduct a review of the activities of each individual employee in order to rely on an exemption in cases such as this.

The trial outcome and motion practice have significant ramifications for the mortgage lender industry and for all employers that maintain an exempt outside sales workforce. The cases also provide important guidance regarding what constitutes sufficient evidence to satisfy the clear and convincing standard for the outsides salesperson exemption. Thus, it is important to review employment policies regularly to ensure compliance with the FLSA.  

Allen & Gooch is providing this legal update for informational purposes only. This article should not be construed as legal advice or a legal opinion as to any specific facts or circumstances. You should consult your own attorney concerning your particular situation and any specific legal questions you may have.