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Apr 1, 2015

The Eighth Circuit Provides Clarity on Outside Sales Exemption and Waiver Requirements under FLSA

ABSTRACT: The Eighth Circuit recently analyzed the application of the "outside sales" and "administrative" exemptions under the Fair Labor Standards Act in the context of promotional workers. Also, the Court was asked to decide, for the first time, what constitutes a valid waiver of an employee's rights under the FLSA.

The Eighth Circuit Court of Appeals was recently asked to decide an issue of first impression in the circuit: What constitutes a valid waiver of claims in a Fair Labor Standards Act (“FLSA”) case?

Adams v. ActionLink, LLC arose from a U.S. Department of Labor determination that ActionLink had misclassified its brand advocates as exempt under the FLSA. Based on that determination, ActionLink agreed to re-classify these employees as non-exempt and issue checks for back wages. When ActionLink s issued the checks, they contained a disclaimer stating that the checks represented “full payment from Actinlink [sic] or [sic] wages earned, including minimum wage and overtime, up to the date of the check.”

A group of brand advocates filed suit and a motion for summary judgment which asked the court to confirm their non-exempt status and award them additional back-wages. ActionLink likewise moved for summary judgment, first asserting that the employees actually were exempt under the FLSA, and second, that those employees that cashed their back-wages checks had waived their rights for additional remuneration under 29 U.S.C. § 216(b). The district court held that the brand advocates were non-exempt, but agreed with ActionLink that the plaintiffs who cashed their checks waived their right to any further back-wages. Both parties appealed.

The Eighth Circuit first addressed ActionLink’s contention that the brand advocates were “outside salesmen” within the scope of 29 C.F.R. § 541.500. While brand advocates were “customarily and regularly engaged away from the employer’s…place of business,” the Court disagreed with ActionLink that the brand advocates’ primary duty was “making sales.” ActionLink conceded that the brand advocates did not actually make their own sales, but argued that the brand advocates’ work nevertheless was included in the FLSA definition of “sale” which includes any “sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” 29 U.S.C. § 203(k) (emphasis added). ActionLink argued that the “or other disposition” provision exempted the brand advocates’ activities, as their duties were designed to drive sales at retail outlets.

The Court disagreed and found that the brand advocates’ work was more akin to non-exempt “promotional work” under 29 C.F.R. § 541.503(b). In so finding, the Court noted that the Department of Labor’s example of non-exempt promotional work accurately described the brand-advocates’ job duties: “a company representative who visits chain stores, arranges the merchandise on shelves, … [and] sets up displays … but does not obtain a commitment for additional purchases.” 

The Court further disagreed with ActionLink’s contention that the brand advocates were exempt under the FLSA’s administrative exemption. 29 C.F.R. § 541.200. The Court found that the brand advocates did not exercise the requisite “discretion and independent judgment with respect to matters of significance” to fall under this exemption.

ActionLink next argued that the language present on the back-wages checks constituted a waiver of any further claims for any brand advocate that cashed the check. While the issue of what constitutes a valid settlement was an issue of first impression in the Eighth Circuit, the Court followed well-established law in other circuits that “simply tendering a check and having the employee cash that check does not constitute an ‘agreement’ to waive claims; an agreement must exist independently of payment.”

The Court held that the language on the checks was inadequate to notify employees of the rights they were waiving or even to suggest the employees were waiving any statutory claim. ActionLink further contended that a letter, sent at least two weeks prior to the checks, met the notice requirements. The Court, noting that a key page of the letter was inadvertently left out of the record on appeal, declined to consider the letter in its decision. However, the Court indicated that even if the complete letter had been included in the record, it still would have been insufficient as it failed to mention any additional recovery rights that brand advocates might have had and that by accepting payment, the brand advocates were waiving those rights.

The Eighth Circuit reversed the district court’s grant of ActionLink’s partial summary judgment motion and remanded to the district court for further proceedings.

Conclusion: The “other disposition” provision of the FLSA generally will not operate to broaden the definition of “outside salesmen” to include those employees whose primary duties focus on promotional work intended to drive sales made by other individuals or stores. Further, any valid settlement of a FLSA claim for back-wages should be accompanied by either a Department of Labor form, or a waiver including comparable language that apprises the employee of the legal claims and any other additional damages the employee may be waiving.