Sales Representatives Win Overtime Lawsuit

​Three sales representatives were entitled to liquidated damages for overtime violations under the Fair Labor Standards Act (FLSA) because their employer lacked reasonable grounds for misclassifying them as exempt, the 4th U.S. Circuit Court of Appeals recently ruled. However, the workers nonetheless did not prove that their employer acted willfully.

The sales representatives filed a lawsuit in the U.S. District Court for the District of Maryland, alleging that E.M.D. Sales Inc., an international food and wine distributor based in Baltimore, and its chief executive officer misclassified them as exempt pursuant to the FLSA's "outside sales" exemption because their primary duty was not "making sales."

Specifically, they argued that management, not the sales representatives, negotiated the sales terms of orders taken at chain stores, and they spent most of their time on promotional and inventory-management activities, not sales.

The FLSA allows a court to award liquidated damages unless the employer shows good faith and reasonable grounds for its pay practices. It also allows an employee to extend their two-year statutory period to three years, if the employee demonstrates that that the employer's violation was willful.

The lawsuit sought unpaid overtime wages, liquidated damages and application of a three-year statutory period.

The defendants argued that the sales representatives qualified for the outside sales exemption because they could make sales at chain stores by securing additional space for E.M.D. products, and regardless, they had reasonable grounds for believing that the employees were exempt. They also argued that any violation of the FLSA was not willful. 

After a nine-day bench trial, the district court concluded that the defendants had not proven by clear and convincing evidence that the outside sales exemption covered their employees. The sales representatives' primary duty was submitting orders to fill space or stock already-negotiated displays, not making sales.

The court also awarded liquidated damages based on the CEO's testimony that the defendants had not investigated and did not have actual knowledge of the sales representatives' actual job duties. As a result, the defendants could not show good faith or objectively reasonable grounds for the employees' classification. Nonetheless, the court declined to extend the two-year statutory period to three years, finding that the defendants' error was "one of neglect, not recklessness or willful misbehavior."

The 4th Circuit affirmed the district court's liability finding, including its application of a clear-and-convincing standard of proof, its award of liquidated damages, and its decision not to extend the statutory period to three years.   

In affirming the award of liquidated damages, the appeals court explained that "[t]here is ample evidence in the record to support the court's finding that the defendants had only an aspirational and not a concrete sense of what their sales representatives did and, specifically, their ability to make sales at chain stores."

The 4th Circuit also found no inconsistency in the district court's finding that the violation was not willful, explaining that, "it can be the case both that an employer was unable to show an objectively reasonable basis for its pay practices and that the employer did not intentionally or recklessly underpay."

Carrera v. E.M.D. Sales, 4th Cir., No. 21-1897 (July 27, 2023).

Natalie F. Bare is an attorney in the Philadelphia office of Duane Morris.