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Proving the outside sales exemption under FLSA

published in Oklahoma Employment Law Letter | August 1, 2012

Gary Lederman sued his former employer, Frontier Fire Protection, Inc., to recover overtime pay he alleged was owed to him under the Fair Labor Standards Act (FLSA). A jury found Frontier liable and awarded Lederman $17,440.86 in damages. Frontier challenged the jury instructions issued by the district court, arguing that the court shouldn’t have instructed the jury that Frontier bore a heightened burden of proof in establishing its entitlement to an FLSA exemption. The U.S. 10th Circuit Court of Appeals (whose rulings apply to Oklahoma employers) agreed and reversed the district court.

 
Background

Frontier sells and installs automatic fire sprinkler systems. It hired Lederman as a senior estimator in 2002. Lederman’s job responsibilities involved contacting customers and potential customers, inspecting customer buildings to evaluate the cost of sprinkler system installation, and preparing bids. He spent 30 to 60 percent of his time in Frontier’s office and did most of his bid preparation work there. The bids he prepared were sent as offers to customers, but the extent of his power to enter into binding contracts on behalf of Frontier was disputed. Frontier paid him a salary and an annual bonus. It didn’t pay him overtime or commissions for the sales he arranged.

Lederman resigned in May 2007 and demanded that Frontier pay him $5,000 as a portion of his annual bonus for that year. Frontier refused, so he hired a lawyer and sued for overtime pay. According to Lederman, he began tracking the amount of overtime he worked on his home computer in 2002 and stopped tracking it in early 2006. He alleged that he frequently worked in excess of 40 hours per week but was never paid overtime except on "approximately one or two occasions."

Frontier asserted the affirmative defense that Lederman qualified as an exempt employee under the FLSA and therefore wasn’t eligible for overtime pay. Specifically, it alleged that he was an exempt outside salesperson as defined by the FLSA.

 
Trial court’s decision

At trial, the evidence regarding whether Lederman qualified as an outside salesperson was mixed, as was the proportion of working time he spent in the office or traveling, the importance of sales to his position, and his authority to finalize sales.

After the close of evidence, Frontier proposed the following jury instruction regarding whether Lederman was an exempt employee: "An employer seeking an exemption from the overtime requirements of the FLSA bears the burden of proving an exemption." Lederman proposed a different instruction: "An employer seeking an exemption from the overtime requirements of the FLSA bears the burden of proving that the particular employee fits plainly and unmistakably within the terms of the claimed exemption." Over Frontier’s objection, the court adopted Lederman’s instruction regarding the outside sales exemption issue. In its oral instructions to the jury, the court stated:

    An employer seeking an exemption from the overtime requirements of the FLSA bears the burden of proving that the particular employee fits plainly and unmistakably within the terms of the claimed exemption. Persons employed in the capacity of ‘outside salesmen’ are exempt from the minimum wage and overtime pay requirements of the [FLSA].

    To prove this exemption, the [employer] must prove by a preponderance of the evidence that (1) the [employee’s] primary duty was (a) making sales; or (b) obtaining orders or contracts for services; and (2) the [employee] was customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.

The jury found that Lederman wasn’t an outside salesperson and was owed overtime compensation.

 
The appeal

Frontier appealed to the 10th Circuit, claiming the trial court erred by instructing the jury that Frontier had to prove Lederman "fit plainly and unmistakably within the terms of the claimed exemption." Frontier argued that the phrase "plainly and unmistakably" was the same as the court stating that an employer has a heightened or unusually heavy burden of proof in establishing an FLSA exemption, which is an incorrect statement of the law that misled the jury. Lederman argued that "plainly and unmistakably" is the burden of proof an employer is required to meet to establish any FLSA exemption.

The court stated that the phrase "plainly and unmistakably" is found nowhere in the FLSA but noted it has been used by courts in interpreting the FLSA not as a "burden of proof" standard but to determine whether the facts were sufficient to establish an FLSA exemption. In other words, the court said the term "plainly and unmistakably" should be used to determine if an exemption makes sense under the facts. However, the employer then must show by a "preponderance of the evidence" that the exemption actually applies to the case at issue. According to the court:

    Our cases stand for the proposition that in considering an FLSA exemption, a court must find that the claimed exemption falls "plainly and unmistakably" within the terms of the statute ? not for the proposition that an employer need prove such an exemption by anything more than a preponderance of the evidence. Once a court finds the employer is eligible to claim the exemption, the fact[-]finder reviews the disputed facts to determine if the exemption is met.

The court concluded the district court shouldn’t have instructed the jury that "an employer seeking an exemption from the overtime requirements of the FLSA bears the burden of proving that the particular employee fits plainly and unmistakably within the terms of the claimed exemption." Instead, the jury should have been instructed to consider the evidence only under the "preponderance of the evidence" standard.

The court also found that Lederman’s counsel made the district court’s error worse by emphasizing the "plainly and unmistakably" standard at the start of his closing argument when he stated:

    Some of you have sat on juries before, and you may be surprised to find out that the burden of proof in this case is different, not just from a criminal case, but for most civil cases. It’s different because in this case on the issue of the exemption, it is the employer that has the burden of proving that Mr. Lederman fit plainly and unmistakably within the outside sales exemption.

The court reversed the jury’s verdict for Lederman and sent the case back to be retried. Lederman v. Frontier Fire Protection, Inc. (10th Cir., 7/12/12).

 
Lesson learned

It’s hard enough for an employer to prove that an FLSA exemption applies without a court making it harder. You do not have a heightened burden of proof under the FLSA.


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