In an important decision for the advancement of employee rights under the Fair Labor Standards Act (“FLSA”), on July 30, 2014 the Sixth Circuit held that the Northern District of Ohio erred in granting Defendant KeHE Distributors, LLC (“KeHE”) summary judgment on whether the Plaintiff sales representatives properly fell within the outside-sales-exemption and further erred in excluding from the collective action, employees that had signed agreements to waive their rights to participate in collective actions against KeHE. Killion v. KeHE Distributors, LLC, Nos. 13-3557/4350 (6th Cir. July 30, 2014).
On February 27, 2012, plaintiffs filed a collective action alleging KeHE, a distributor of ethnic and health foods to retailers, failed to pay their sales representatives overtime wages though they regularly worked in excess of sixty hours a week. Sales representatives were compensated entirely through commissions throughout their employment. Defendant KeHE argued that they were not required to provide overtime compensation as the sales representatives qualified as “outside salesman” and thus were exempt from overtime wages pursuant to the FLSA. According to the Department of Labor (“DOL”), an outside salesman is an employee whose primary duty is making any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition. 29 C.F.R. § 541.500, 29 C.F.R. 203(k). Further, pursuant to DOL regulations in order to fall within the exception, the employee’s primary duty must consist of the performance of exempt work. 29 C.F.R. § 541.700(a). Thus, the case turned on whether (1) the sales representatives make sales as part of the job duties and (2) and whether making sales was their primary duty. Sales representatives’ responsibilities included, among other things, stocking shelves, reordering merchandise whenever an assigned store was low on KeHE’s products and organizing products on shelves. Additionally, evidence indicated that employees in other positions handled the actual sales of goods to retailers. The court held that the record was sufficient for a jury to reasonably conclude that sales representatives do not actually make the sales to retailers and that it was the jury’s function to determine whether making sales was the primary duty of the sales representatives, emphasizing that whether employees are exempt from FLSA requirements is primarily a question of fact. Accordingly, the court deemed summary judgment improper.
The other central issue in the case surrounded separation agreements signed by discharged sales representatives in 2012, which provided that the employees agreed to release all claims arising out of their employment against KeHE including not to consent to become a member of a class or collective action against KeHE arising out of their employment or termination. The court held these agreements invalid as the law has made clear that employment agreements cannot be utilized by employers to deprive employees of their rights under the FLSA. In coming to this conclusion, the court explained that an employee can only waive his right to a judicial forum under the FLSA, if an alternative forum is provided for the vindication of the employee’s rights, which is usually in the form of arbitration. As there were no arbitration provisions in the separation agreements the court held that the district court erred in excluding those sales representatives that had signed these separation agreements.
The Employment Lawyers at Fitapelli & Schaffer frequently represent employees who have been misclassified as exempt under the Fair Labor Standards Act. Please contact us at (212) 300-0375 to schedule a free consultation to further discuss your rights. For more information please visit our website,www.fslawfirm.com.