Avoid an Employee Lawsuit

There has been a recent increase in the number of lawsuits brought by health care workers against employers under the Fair Labor Standards Act (FLSA). This article provides a summary of the FLSA and how DME suppliers can comply with the FLSA “outside exemption” for commission-based marketing employees. Under a commission-based compensation arrangement, a DME supplier pays its marketing employees (full-time or part-time) a commission to recommend the company’s products to referral sources. The amount of compensation varies with the amount of DME sold to Medicare or Medicaid beneficiaries based on referrals. The federal Anti-Kickback Statute (AKS) “bona fide employee” safe harbor allows a DME supplier to engage in this kind of financial arrangement, which is otherwise not allowed for independent contractors. A commission-based compensation 
arrangement must comply with the FLSA. The FLSA is a federal statute that establishes minimum wage and overtime pay for the majority of non-exempt employees. According to the FLSA, employers can pay marketing/sales employees commission-based compensation, but the compensation must be equal to, at least, the federal minimum wage. If not, the employer must pay the difference. The FLSA exempts an employer from paying a commission-based employee minimum wage and overtime if the 
commission-based employee is deemed a: (a) bona fide executive, (b) administrator, (c) professional or (d) outside salesman. The outside salesman employee exemption applies if the following are met: 1) The employee’s primary duty is making sales or obtaining orders or contracts for services; 2) The employee must be customarily and regularly engaged away from the employer’s place or places of business. In a recent Supreme Court case, Christopher v. SmithKline Beecham Corp. d/b/a GlaxoSmithKline, 132 S. Ct. 2156 (2012), two pharmaceutical sales representatives brought suit against GlaxoSmithKline for failure to pay overtime under the FLSA. The representatives spent approximately 40 hours/week calling on physicians to discuss GlaxoSmithKline’s prescription drugs. The representatives’ primary duty was to obtain a nonbinding commitment from physicians to prescribe GlaxoSmithKline’s drugs. The representatives also spent 10-20 hours attending events and performing other tasks. The representatives did not have to report their hours, and were subject to minimal supervision. The representatives’ compensation was based on the number of drugs sold. Ultimately, the Court held that the representatives were exempt outside salesmen because their primary duty was to make sales at a physician’s place of business. Similar to Christopher, marketing employees in a DME setting primarily promote a supplier’s products and obtain referral sources’ commitment to prescribe products to be provided by the supplier. DME marketing personnel are paid a commission based on the amount of referrals that materialize in sold products. Based on the foregoing, for DME suppliers to properly invoke the outside sales exemption for their marketing personnel:

• Suppliers must make sure they treat marketing personnel as bona fide employees, and treat them as independent contractors.
• Primary duty of marketing personnel must be to make sales or obtain orders or contracts for services. According to the FLSA, sales include any “sale, exchange, or contract to sell, consignment for sale, shipment for sale, or other disposition.”
• Marketing personnel must conduct their primary duties away from the supplier’s regular place of business. A commission-based employee is engaged away from the employer’s place of business if the employee makes sales “at the customer’s place of business, or, if selling door-to-door, at the customer’s home.” The Department of Labor clarified that outside sales does not include “sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls.” Any fixed site, including a home or office, used by a salesperson as a headquarters or for telephone solicitations, is considered the employer’s place of business, even if the employer is not the owner or tenant of the property.
• Total amount paid to the marketing employee must equal, at least, federal minimum wage multiplied by the number of hours worked.