BERNARD ZIMMERMAN, United States Magistrate Judge.
Plaintiffs have moved for partial summary judgment that the outside sales and administrative exemptions do not apply to their job duties.
In 2003, defendant The Hershey Company restructured its domestic sales force to adapt to a changing retail environment. As part of the restructuring, defendant created an entry-level Retail Sales Representative (RSR) position. Defendant classified this position as exempt from overtime under both federal and California law, and never paid hourly compensation to RSRs for any overtime they worked.
Under the new retail strategy, RSRs are part of teams that help defendant sell its
The parties dispute the scope of the RSRs' job duties. From defendant's perspective, the RSRs are vital to the company's sales. Their job duties include selling defendant's products directly to retail stores, meeting and consulting with key decision makers at retail stores to increase sales, and occasionally assisting retail stores with merchandising
In 2008, three former RSRs brought this wage and hour action against defendant. They alleged defendant misclassified them as exempt employees, denying them compensation for the overtime hours they had worked. Defendant denied these allegations, asserting that plaintiffs' employment position satisfies the exemptions from overtime for outside salesmen and administrative employees. In 2010—after 19 additional RSRs had joined the suit—this Court, over defendant's objection, allowed the case to proceed as a collective action for plaintiffs' federal and pendant California claims.
Because plaintiffs filed their complaint almost three years ago, both parties have had ample time to conduct discovery on the issues presented in the case. The record on this motion is almost two feet thick, and includes declarations from 37 plaintiffs as well as RSRs who did not opt-in.
Summary judgment is appropriate only when there is no genuine dispute of material fact, and the moving party is entitled to judgment as a matter of law. Fed. R.Civ.P. 56. The moving party bears both the initial burden of production as well as the ultimate burden of persuasion to demonstrate that no genuine dispute of material fact remains. Nissan Fire & Marine Ins. Co., Ltd. v. Fritz Companies, Inc., 210 F.3d 1099, 1102 (9th Cir.2000). Once the moving party meets its initial burden, the nonmoving party is required "to go beyond the pleadings and by [its] own affidavits, or by the depositions, answers to interrogatories, and admissions on file, designate specific facts showing that there is a genuine issue for trial." Celotex Corp. v. Catrett, 477 U.S. 317, 324, 106 S.Ct. 2548, 91 L.Ed.2d 265 (1986) (internal quotations and citations omitted). If the nonmoving party's evidence is not significantly probative, summary judgment may be granted. Anderson v. Liberty Lobby, Inc., 477 U.S. 242, 249-50, 106 S.Ct. 2505, 91 L.Ed.2d 202 (1986). Courts, however, are required to view the evidence in the light most favorable to the nonmoving party. Matsushita Elec. Indus. Co., Ltd. v. Zenith Radio Corp., 475 U.S. 574, 587, 106 S.Ct. 1348, 89 L.Ed.2d 538 (1986). If a reasonable jury could return a verdict in favor of the nonmoving party, summary judgment is inappropriate. Liberty Lobby, 477 U.S. at 248, 106 S.Ct. 2505.
Here, plaintiffs seek summary adjudication on defendant's affirmative defenses asserting the outside sales and administrative exemptions. Defendant does not argue that plaintiffs have not met their initial burden of production. Rather, defendant's position is that it has submitted probative evidence that raises a genuine dispute as to whether the plaintiffs' job duties fall under the exemptions. Having reviewed the evidence most favorably to defendant, defendant fails to raise a triable issue because the undisputed facts, discussed in detail below, demonstrate that plaintiffs are not outside salesmen or administrative employees.
In 1938, Congress enacted the Federal Labor Standards Act (FLSA) to eliminate "labor conditions detrimental to the maintenance of the minimum standard of living necessary for health, efficiency, and general well-being of workers." 29 U.S.C. § 202(a). As part of this effort, the FLSA requires employers to pay overtime compensation to employees who work more than 40 hours per week. See 29 U.S.C. § 207(a)(1). Certain employees are exempt from this provision, including outside salesmen and administrative employees. See 29 U.S.C. § 213(a)(1). These exemptions are "narrowly construed against the employers seeking to assert them" and are limited to those employees "plainly and
The scope of the FLSA's exemptions is not set forth in the Act, but in the regulations and interpretations of the Department of Labor (DOL). Auer v. Robbins, 519 U.S. 452, 456, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997) ("The FLSA grants the [DOL] broad authority to `defin[e] and delimi[t]' the scope of the exemption for executive, administrative, and professional employees" (citing 29 U.S.C. § 213(a)(1))). These regulations and interpretations are particularly important to this matter because no other court has evaluated the classification status of employees that have the specific characteristics and job duties of RSRs. DOL's regulations are given controlling weight by courts unless found to be arbitrary, capricious, or contrary to the statute, something that defendant does not argue in its opposition. See Chevron U.S.A., Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 843-844, 104 S.Ct. 2778, 81 L.Ed.2d 694 (1984). While DOL's interpretations of its regulations do not have the force and effect of law, courts look to them as persuasive authority. See Christensen v. Harris County, 529 U.S. 576, 587, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000); Skidmore v. Swift & Co., 323 U.S. 134, 140, 65 S.Ct. 161, 89 L.Ed. 124 (1944).
During oral argument, defendant suggested that the Ninth Circuit's recent decision in Christopher v. SmithKline Beecham Corporation required that this Court give less deference to the DOL regulations. See 635 F.3d 383, 2011 WL 489708 (9th Cir.2011). Defendant is incorrect for a number of reasons. First, much of the Ninth Circuit's analysis in Christopher seems to focus on the degree of deference to be accorded to the interpretation of the statute and regulations made by the DOL in its amicus brief. See, e.g., 635 F.3d at 394-95, 2011 WL 489708 at *10. Second, unlike the pharmaceutical industry to which the regulations governing sales did not neatly apply because of the legal prohibitions against sales to doctors, here certain provisions of the DOL regulations, such as 29 C.F.R. § 541.503, squarely apply to defendant's RSRs. Plaintiffs' complaint that they do not "sell" to defendant's customers, does not "ignore the structure and realities" of a heavily regulated industry. 635 F.3d at 396, 2011 WL 489708 at *11. Nor does the Ninth Circuit's concern that the DOL had acquiesced in the drug industry's practices for over 70 years apply here; the RSR position is less than 10 years old. See 635 F.3d at 399-400, 2011 WL 489708 at *15.
Defendant first asserts that RSRs are outside salesmen. For this exemption to apply to plaintiffs, their primary duty must
Defendant initially argues that the exemption applies because certain RSRs directly sell products to some retailers without the involvement of a CSE. It is undisputed that some plaintiffs have made these types of sales. But defendant's argument misses the point. The outside sales exemption only applies to plaintiffs if direct selling is their primary duty—not just something they do occasionally or even regularly but on a minimal basis. Although 14 plaintiffs have been deposed, defendant has not pointed to a single plaintiff who has testified that her primary duty was making direct sales. Instead, defendant's evidence is limited to conclusory statements from several RSRs that they engage in direct sales. See, e.g., KohSweeney Declaration, Ex. 9 at ¶ 7 (one RSR explains direct selling but does not quantify how frequently it occurs or how much time is spent on it: "In direct sales, I convince my stores to purchase additional Hershey products from me"). Or defendant submits evidence that RSRs have at times made direct sales. See, e.g., KohSweeney Declaration, Ex. 3 at ¶ 15 (RSR, who has worked for defendant for about ten years, cites two examples of direct sales he made). Defendant has therefore failed to submit evidence which raises a genuine dispute that direct selling constitutes the plaintiffs' primary duties.
Defendant next contends that RSRs are outside salesmen because they engage in "incremental selling" and "sell through" of Hershey products. Defendant defines these functions, respectively, as "encourag[ing] each customer-store to buy additional product above and beyond any order placed through the CSE" and increasing "the amount of Hershey product[s] sold by a customer-store to its consumers." Opposition at 5. Defendant asserts that this is the primary aspect of the RSR's job. Id. But whether the plaintiffs are exempt depends on "actual day-to-day job duties performed by [them] rather than general descriptions or characterizations of job duties." Reyes v. Texas EZPAWN, L.P., 459 F.Supp.2d 546, 553-54 (S.D.Tex.2006) (citing 29 C.F.R. § 541.2).
According to defendant, RSRs who obtain commitments from retailers to replenish Hershey products ("incremental selling") and help retailers market products to increase sales to consumers ("sell through") are "making sales." Defendant contends that it is immaterial when a sale is actually booked, whether the plaintiffs are credited with the sale, or if the plaintiffs receive a commission for the sale. While the FLSA and its regulations do not specifically require these factors to be present for the outside sales exemption to apply, their absence is not the reason for deciding that plaintiffs are not outside salesmen.
The DOL's regulations point out the important distinction between individual sales and company sales:
29 C.F.R. § 541.503 (emphasis added). Accordingly, the requirement for sales is not met when employees' efforts are directed "toward stimulating the sales of [their] company generally rather than the consummation of [their] own specific sales." Dep't of Labor, Wage & Hour Div., Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 69 Fed.Reg. 22122, 22162 (Apr. 23, 2004).
Here, defendant has not produced evidence that plaintiffs' primary duties are "making sales" as contemplated by the regulations. Defendant concedes that its upper-level salespeople, such as CSEs, negotiate sale agreements—without any involvement from the RSRs—for the company's products with customers' corporate offices (i.e., Walmart, Safeway, Albertson's, etc.). Shein Declaration at ¶ 5; Smuda Declaration at ¶ 10. That is when the sale is recorded, and Hershey products are later shipped to the retailers. See Malloy Declaration, Ex. L. It is undisputed that plaintiffs then help stimulate sales by encouraging retailers to replenish their supply and ensuring that sold products are properly marketed at the retail stores. Smuda Declaration at ¶¶ 10-12. While this facilitates the movement of Hershey products from warehouses and stockrooms to the shelves of retail stores and into the hands of consumers, this does not constitute an additional "sale." The work done by plaintiffs may increase defendant's sales, but it does not affect the plaintiffs' own sales. Since plaintiffs are not the individuals making the actual sale as the exemption requires, this type of "incremental selling" and "sell through," even if
The disconnect between what defendant considers to be a sale and what the regulations consider to be a sale is illustrated by one of the examples that defendant cites, exhibit B to the declaration of Steve Wilson. Wilson, a district sales manager, supervises RSRs including plaintiff Michael Bain. Exhibit B is a communication from Bain to Wilson explaining that as Halloween was approaching one of his stores "did not have a candy display ... all product went to the shelf." Bain therefore convinced the store manager to build a display which "meant that [the store] would be sent a lot of this product." This exhibit supports plaintiffs' characterization of what they do—marketing products that have already been or will be sold by someone else so that products move through the store. This may permit someone else to sell more Hershey products but it does not constitute a direct sale as that term is defined in the regulations.
Defendant points out that RSRs sometimes persuade retailers to order additional products from allotments at warehouses that have not previously been sold by CSEs. Smuda Declaration at ¶ 18. Defendant also repeatedly references a hypothetical sales scenario where a CSE intentionally sells less to a retailer "for the purpose of creating additional RSR selling opportunities at the store level." See, e.g., Shein Declaration at ¶ 6. According to defendant, under both of these methods the RSRs' selling efforts correspond directly with their own sales. But these arguments from defendant are once again misplaced. While these types of sales may happen at times, the critical issue is whether plaintiffs sell in this manner for the majority of the time. Out of all the declarations and depositions submitted by defendant, both from RSRs and defendant's corporate witnesses, defendant has not pointed to any evidence that this type of selling occurs frequently, let alone that it constitutes the primary aspect of plaintiffs' job duties.
The declaration of Thomas Smuda is telling. He is the Vice President of North American Retail and a person in a position to be able to testify that plaintiffs' spend a lot of their time selling products that have not yet been sold by CSEs. But he does not do this. Instead, he first distinguishes "direct selling" from "incremental selling." KohSweeney Declaration, Ex. 1 at ¶ 19-20. He explains that RSRs engage in "direct selling" when there is no CSE assigned to that retailer. Id. at ¶ 19. Smuda does not mention how many RSRs and retailers fit into this category and how much of the RSRs' duties are devoted to this task. Id. He then explains that when a retailer does have an assigned CSE, RSRs engage in "incremental selling," including "convincing the customer-store to fully participate in upcoming promotions" and "convincing the customer-store to allocate more space to Hershey product[s]." Id. at ¶ 20. Smuda does not testify that RSRs' primary "incremental selling" duties include making sales besides those already made by
The policy reasons behind the enactment of the FLSA support the finding that plaintiffs' are not primarily engaged in selling. The Tenth Circuit explained:
Jewel Tea Co. v. Williams, 118 F.2d 202, 207-08 (10th Cir.1941); see also Christopher, 635 F.3d at 398, 2011 WL 489708 at *13. Unlike the salesmen Congress sought to exempt, plaintiffs do not receive commissions. See supra footnote 4. They only earn an entry-level salary and a potential targeted bonus of 13% of their salary, which is also not based on their individual sales. Id. Consequently, plaintiffs are not rewarded for all the overtime they are required to work. Nor do they earn "as much or as little" as "[their] ambition dictates," a common aspect of the typical salesmen. See Jewel Tea, 118 F.2d at 207-08.
Nor can Hershey argue that plaintiffs are not amenable to supervision and having their hours monitored. While working and performing their duties, plaintiffs are required to carry personal digital assistants, called REX devices, that are issued by defendant. See Harsh Declaration. Defendant expects plaintiffs to use the REX to record the time they spend at each store. See id. at Ex. A. The REX therefore provides defendant with the ability to keep track of the hours worked by plaintiffs. See also id. at ¶ 6 ("the REX has a feature which acts as a digital timeclock or timesheet for users to track all hours worked, but this feature has never been activated for RSRs since the rollout of REX in 2004").
The Christopher decision also does not help Hershey. In Christopher, the Ninth Circuit disagreed with the Second Circuit and other courts in holding that pharmaceutical sales representatives (PSRs) are outside salesmen, even though they are not permitted by law to make sales directly to consumers and instead focus their efforts on obtaining commitments from physicians to prescribe their company's medications. 635 F.3d 383, 2011 WL 489708. But the fact-specific rationale of Christopher does not apply to plaintiffs, who are not prohibited from selling Hershey products directly to stores.
Christopher, like this Court, found the Jewel Tea factors instructive as well. See id. at 397, at *13. Although defendant is correct that plaintiffs' job duties have some similarities to those of PSRs and the plaintiffs in Jewel Tea (i.e., working in assigned territories, not making deliveries, completing clerical duties at the end of the day, etc.), two important Jewel Tea factors that Christopher turned on are not present in this case. These factors were cited in Christopher at the conclusion of the opinion:
635 F.3d at 400-01, 2011 WL 489708 at *16. As explained earlier, plaintiffs' overtime work is not compensated by any commissions they receive.
For the foregoing reasons—and consistent with the rule that exemptions are limited to those employees "plainly and unmistakably" within the exemptions' "terms and spirit"—the outside sales exemption does not apply to plaintiffs. See Christopher, 635 F.3d at 391, 2011 WL 489708 at *7. Accordingly, plaintiffs' motion for partial summary judgment is granted on the outside sales exemption.
Plaintiffs have also met their ultimate burden of persuasion that there is no genuine dispute regarding the administrative exemption applying to them. To be considered administrative employees, plaintiffs' primary duties must include: (1) nonmanual work "directly related to the management or general business operations of the employer or the employer's customers," and (2) the exercise of "discretion and independent judgment" with respect to "matters of significance." 29 C.F.R. 541.200(a).
The parties dispute the amount of nonmanual work performed by plaintiffs and the discretion they exercise. Plaintiffs present evidence that they are required to perform substantial physical tasks as part of their daily merchandising efforts, such as building promotional displays and carrying as well as opening boxes to restock Hershey products. Defendant contends that this is only true for a minority of plaintiffs; the majority are primarily engaged in nonmanual work because they ensure that the retailers' employees perform the necessary merchandising duties. Likewise, the parties dispute whether the REX is used for supervision and whether certain "RSR guidelines" that defendant developed are meant to be followed, as plaintiffs contend, or are meant to be deviated from, as defendant contends. The contradictory testimony on these issues results in genuine disputes over the amount of nonmanual work performed by plaintiffs and the amount of supervision they receive. But these disputes are immaterial to a determination whether the administrative exemption applies since defendants have not presented evidence to raise a triable issue under the last part of the exemption's second requirement.
This second requirement is not satisfied because defendants do not present evidence that plaintiffs exercise discretion with respect to "matters of significance." The regulations explain that "matters of significance" refers to the level of importance of the work at issue or the consequence of that work. 29 C.F.R. § 541.202(a); see also Defining and Delimiting the Exemptions, supra at 22143 ("the work performed by an exempt administrative employee must be significant, substantial, important or of consequence"). This is an element that is critical for the exemption to apply. See Defining and Delimiting the Exemptions, supra at 22144; see also Christopher, 635 F.3d at 391, 2011 WL 489708 at *7 ("Because exemptions are `narrowly construed' against the employer, to meet its burden, an employer must establish that the employee satisfies each of the criteria set forth in the [DOL's] regulations").
Under the undisputed facts, plaintiffs' job duties do not rise to the level of importance necessary for them to be exempt employees. A list of non-exclusive factors to consider when evaluating the administrative exemption is provided by the DOL:
29 C.F.R. § 541.202(a). Plaintiffs have presented deposition testimony that many of these factors do not apply to their job duties as RSRs. Plaintiffs have testified that (1) they have no authority to negotiate or commit defendant to matters that have a significant financial impact (see, e.g., Malloy Declaration, Ex. T at 42; Ex. N at 11) (2) they can not deviate from defendant's established policies and procedures without getting permission from their supervisors (see, e.g., Malloy Declaration, Ex. T at 42; Ex. N at 11); and (3) they do not carry out major assignments in conducting the operations of the business (see, e.g., Malloy Declaration, Ex. T at 41; Ex. S at 77). Nor do they design advertisements or decide when to reduce prices to stimulate sales, factors deemed important by both the Ninth Circuit in Christopher, 635 F.3d at 398-99, 2011 WL 489708 at *14, and the Second Circuit in Reiseck v. Universal Communications of Miami, Inc., 591 F.3d 101, 107 (2d Cir.2010). In fact, it is undisputed that plaintiffs lack the capacity to change prices or negotiate discounts. See Joint Statement of Undisputed Facts ¶¶ 5-6.
Defendant's opposition did not specifically address any of these factors. More importantly, defendant has not pointed to any evidence that demonstrates that plaintiffs' primary duties as RSRs are related to matters of significance. As an example of the discretion that RSRs exercise, defendant submits evidence that RSRs have flexibility regarding the order in which they visit their retailers, the amount of time they spend at their retailers, and the method and manner of their presentations to the retailers. Opposition at 19-20. Even accepting these as true, the Court finds that deciding the order of stores to visit, how much time to spend in a store, or which of the sales tools defendant provides to use are not matters of sufficient significance to trigger the administrative exemption. See Clark v. J.M. Benson Co., Inc., 789 F.2d 282, 287-88 (4th Cir.1986)("The regulations recognize that almost every employee exercises some discretion, as for example in selecting the order in which to perform different duties. To demonstrate administrative status, however, the discretion and independent judgment exercised must be real and substantial, that is, they must be exercised with respect to matters of consequence") (internal quotations and citations omitted). Defendant does not point to any other primary duties performed by plaintiffs that would rise to the level of importance required by the exemption.
In its opposition, defendant argues, for the first time,
This combination exemption does not save defendant. As explained earlier, defendant has not shown there is a genuine dispute regarding the outside sales or administrative exemptions applying to the plaintiffs. Defendant has not submitted evidence that plaintiffs satisfy the administrative exemption's prerequisite of primarily working on matters of significance. The plaintiffs' primary duties with respect to the outside sales exemption are also not exempt duties. Defendant has not presented specific evidence that plaintiffs primarily performed any combination of exempt duties to satisfy the combination exemption.
The FLSA's legislative history corroborates the Court's decision, based on this record, that plaintiffs do not perform exempt duties:
See Defining and Delimiting the Exemptions, supra at 22123-24. These factors
As the Ninth Circuit cautioned in Christopher, exemptions can only apply to persons `plainly and unmistakably within [the exemption's] terms and spirit.' 635 F.3d at 391, 2011 WL 489708 at *7. Construed narrowly against defendant, these plaintiffs are plainly not exempt. Unlike the PSRs in Christopher, plaintiffs do not work in a heavily regulated industry where they are prohibited from making sales. What prohibits plaintiffs from having as their primary duty outside sales or significant administrative tasks is defendant, which chose to assign these tasks to others. Defendant does have employees, such as CSEs, who appear to qualify for exempt status. Unlike PSRs who interact with doctors and discuss with them scientific information and medical research, including information about product benefits and risks, dosage instructions and the types of patients for which certain products should be prescribed, plaintiffs talk to store managers about increasing the movement of candy bars and other Hershey products. Unlike PSRs who earn about $75,000 a year, of which incentive compensation ranged from 26% to 41% of the PSRs' salary, plaintiffs generally earn less than $50,000 a year with much smaller bonuses. See Christopher, 2011 WL 489708 at footnote 4. And while the nature of some of the PSR duties, such as attending conventions on weekends, might not lend themselves to a 40 hour week, defendant has not presented any evidence why plaintiffs could not perform their jobs in 40 hours if defendant's guidelines and procedures were altered to permit them during the workday, to check their e-mail, synchronize their REX, review product bulletins and do the other tasks which they testify they now do on evenings or weekends.
The issue before the Court is not whether defendant's sales strategy is successful but whether it can execute that strategy without paying plaintiffs, one component of that strategy, overtime. For the reasons stated above, the letter and the spirit of the FLSA require that plaintiffs be paid overtime. Plaintiffs' motion for partial summary judgment is therefore
29 C.F.R. § 541.503(c) (emphasis added).
