Outside Sales Exemption To California Employment Law – A 2020 Guide

30 Sep 2017

Are you unsure if California’s outside sales exemption might apply to your position? Are you concerned that you may have been misclassified by your employer?

Both federal and California laws include several categories of workers which are considered exempt from certain types of fundamental employee rights such as overtime. One of these classes is that of the outside salesperson.

According to California’s Labor Code section 1171, an outside salesperson is defined as:
“A person (1.) age 18 or older who (2.) customarily and regularly spends more than half of his or her working time (3.) away from the employer’s place of business (4.) selling tangible or intangible items or obtaining orders or contracts for products, services, or use of facilities.” (8 Cal.C.Regs. § 11010).

This guide will help you break down and understand the definition of an outside salesperson, as well as the tests and standards used by California’s courts to determine whether an employee is exempt or nonexempt.

For a better understanding of these laws and how they apply to the various categories of exempt and non-exempt employee, please see the article Exempt vs. Non-Exempt Employee: California Law Explained.

California’s Labor Code section 1171 defines outside salesperson utilizing three standards: age, the location of work, and the sale of services or products. An employee must meet all three of these standards to be considered an exempt outside salesperson under California law.

To be considered an outside salesperson, an employee must be an adult – 18 years or over. Employees under 18 cannot be exempt even if their job description would otherwise qualify them as an outside salesperson.

An outside salesperson must spend “more than half of his or her working time” outside of “the employer’s place of business” performing sales or directly sales-related tasks. Both of the above-stated elements must be present for the employee to be considered exempt.

The California courts use a quantitative standard in determining whether an employee qualifies as an outside salesperson. For example:

Tasks directly associated with and contributing to sales which occur outside the place of business can be counted towards exempt status. This includes time the employee spends driving to and from customers’ homes or stocking their car with sample products.

Tasks, even those directly associated with sales, which occur inside the place of business can NOT be counted towards exempt status. This includes calling customers on the telephone to tell them about products or preparing and mailing flyers or coupons.

In Ramirez v. Yosemite Water Co (1999), the California Supreme Court determined that an employee who both sold and delivered bottled water to customers did not count as exempt because the time he spent delivering could not be counted towards “more than half of his or her working time” as it did not constitute a sales-related activity.

What does this mean for employees today? According to the standards established by Ramirez, if an employee performs both sales and non-sales tasks outside the employer’s place of business, time spent driving, or preparing must be divided evenly between time spent on sales (counting towards exemption) and time spent on delivery or non-sales tasks (not counting towards exemption). Employers cannot fully consider all of such time as qualifying employees for exemption.

In determining an employee’s status as exempt or nonexempt, “the employer’s place of business” does not solely apply to the office or location where the employee and/or the employee’s supervisor habitually work.
“Place of business” can be applied to an employee’s home office. Time spent performing tasks in a home office such as telephone calls to customers cannot be counted towards exemption.

Additionally, temporary sites which might be utilized by the employer, such as a temporary trailer at a construction site or a model home, are considered “the employer’s place of business” in regards to the outside salesperson exemption. Time spent at any of these temporary facilities cannot be counted as time spent performing outside sales.

An employee considered an outside salesperson must be engaged in selling tangible or intangible goods or obtaining orders for products or services. An employee who sells vacuum cleaners, an employee who takes orders for vacuum cleaners, and an employee who goes door to door advertising a professional vacuum-cleaning service would all be fall under the umbrella of outside salespeople.

California law differentiates the selling of services and the performing of services. In the above example, the employee who visits customers and encourages them to sign up for a professional vacuum cleaning service would be considered an outside salesperson. The employee who vacuums the customers’ homes would be considered to be performing a service, and thus be nonexempt.

If an employee performs both the selling and performing of services – such as an employee who vacuums customers’ homes but also encourages them to buy more high tech vacuums or add-ons for their current vacuum – whether or not they are exempt is determined by whether they spend “more than half” of their working time on sales activities, as discussed above.

In Barnick v. Wyeth (2007), California’s courts ruled that sales promotions were considered sales in regards to determining an employee’s exempt status. A pharmaceutical sales rep was determined to be an outside salesperson even though their job consisted of promoting the company’s products to doctors, rather than selling the physical medicines themselves. It is important to note that the court considered factors such as whether the employee’s job was advertised as a sales position and whether the employee received training in sales while holding the position.

In Ramirez v. Yosemite Water Co. (1999), California’s Supreme Court developed a series of tests to be applied in future cases. These questions are still used today in California court cases to determine an employee’s exempt or nonexempt status. They are aimed at representing both the employer and the employee’s perspective fairly.

If you believe that you have been misclassified by your employer, seek legal advice immediately. Contact us today for a free legal consultation with an employment lawyer.