Employer of Costco store demonstrator wrongly deems her outside salesperson, court says

An employee who works more than half the time away from the employer’s place of business qualifies as an outside salesperson, who would be exempt from the legal requirements for overtime, wages, and meal and rest breaks, a recent California case said.

Warehouse Demo Services, Inc. – the defendant in the case of Espinoza v. Warehouse Demo Services, Inc. – was the exclusive product demonstration company for Costco Wholesale. The defendant employed demonstrators, which were classified as part-time, nonexempt, hourly, and eligible for overtime pay.

The plaintiff – who worked as a demonstrator for the defendant for around five years – filed a class action complaint that alleged violations under California’s Labor Code, including failure to pay wages and/or overtime and failure to provide meal and rest breaks.

In response, the defendant brought a summary judgment motion. It argued that the plaintiff lacked the standing to file the claims because she fell under the outside salesperson exemption. The exemption allegedly applied because the plaintiff was selling away from the defendant’s place of business, given that the defendant did not own or lease space at Costco.

The trial court granted the defendant’s summary judgment motion. It made the following findings:

• The outside salesperson exemption was applicable
• The plaintiff did not work at the defendant’s place of business because it did not maintain, own, or control any space within Costco
• The plaintiff was engaged in sales activity since demonstrating products amounted to sales
• It was implausible that the setup and end-of-shift cleanup would take anywhere close to half of the plaintiff’s shift, even though the exact time that the plaintiff spent on non-sales tasks was not calculated

The plaintiff appealed from the trial court’s judgment. The California Court of Appeal for the First District reversed the trial court’s decision in the defendant’s favor and returned the proceeding to the trial court to determine the issues raised.

According to the appellate court, to decide whether an employee works away from the employer’s place of business, the focus should be on the extent to which the employer maintains control or supervision over the employee’s hours and working conditions. The analysis should not focus on whether the employer owns or controls the work site.

In this case, the Court of Appeal noted that the defendant assigned the plaintiff to work within a small, designated area within a fixed site for every shift. The defendant also required the plaintiff to clock in and out at each shift, to maintain her designated area in a safe and sanitary condition, and to refrain from leaving the area during her shift unless another employee arrived to relieve her for a break.

The outside salesperson exemption exists because employers have historically found it difficult to control or monitor outside salespersons who control their own hours and schedule and because outside salespersons receive pay on a commission basis, the appellate court said.

Applying the outside salesperson exemption would not serve the purpose of the exemption in this case since the defendant carefully monitored and controlled the plaintiff’s hours and schedule, the Court of Appeal concluded.