Ackerman v. Coca-Cola Enterprises, Inc. , 179 F.3d 1260 ( 1999 )

F I L E D
United States Court of Appeals
Tenth Circuit
PUBLISH
JUN 10 1999
UNITED STATES COURT OF APPEALS
TENTH CIRCUIT
PATRICK FISHER
Clerk
RICHARD ACKERMAN, TIMOTHY
BOOKER, ERICH BUTLER, MICHAEL
DICKSON, EDWARD DONAHOE,
MICHAEL FABIAN, STEVEN JONES,
MARK MARES, ROBERT MOON,
JAMES MUELLER, DANA ROE, KIM
SMITH, PAUL SPIELMAN, ALAN
TAMONDONG, AND BRAD
VELLIQUETTE,
Nos. 97-1079,
Plaintiffs - Appellees/Cross-
97-1102
Appellants,
v.
COCA-COLA ENTERPRISES, INC., a
Delaware Corporation in good standing
and licensed to do business in Colorado,
Defendant-Appellant/Cross-
Appellee.
Appeal from the United States District Court
for the District of Colorado
(D.C. No. 93-OK-1633-TL)
Walter V. Siebert, of Sherman and Howard, Denver, Colorado (Ronald G. Ingham and
Kelly L. Weston, of Miller and Martin, Chattanooga, Tennessee, with him on the briefs),
for the Defendant-Appellant/Cross-Appellee.
Daniel P. Powell, Alamosa, Colorado (Gary McPherson and Brandon P. Hull, Aurora,
Colorado, with him on the briefs), for the Plaintiffs-Appellees/Cross-Appellants.
Before ANDERSON, EBEL, and HENRY, Circuit Judges.
HENRY, Circuit Judge.
Coca-Cola Enterprises (Coca-Cola) appeals the district court’s decision that
advanced sales representatives and account managers employed by the company are
entitled to overtime compensation under the Fair Labor Standards Act (FLSA), 29 U.S.C.
§§ 201-219.1 We conclude that these employees are exempt from the overtime
compensation requirements of the FLSA because they are “outside salesmen,” as that
term is defined by Department of Labor regulations. We therefore reverse the decision of
the district court and remand for further proceedings consistent with this opinion.
I. BACKGROUND
From 1991 to 1993, the plaintiffs were employed by Coca-Cola as advance sales
representatives and account managers. Their primary responsibility was to sell Coca-Cola
products to grocery stores, convenience stores, and mass merchandisers. During the
period from 1991 to 1993, Coca-Cola also employed individuals known as
“merchandisers.” Although merchandisers did not sell Coca-Cola products, they
1
The Coca-Cola advance sales representatives and account managers have
filed a cross-appeal in which they challenge several other rulings by the district court. In
light of our conclusion regarding the outside salesman exemption, we address neither the
issues raised in the cross-appeal nor the other issues raised in Coca-Cola’s appeal.
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performed a wide variety of tasks associated with the distribution and promotion of the
company’s products, including: restocking shelves, replacing damaged products, filling
coolers, filling vending machines, delivering products and equipment, adjusting and
cleaning display shelves, setting up displays, rotating products, hanging signs, cleaning
the warehouse, cleaning coolers and shelves, restocking pallets, and transferring products
from one store to another.
During the period at issue in this case, Coca-Cola employed two different methods
of distribution. Prior to April 1, 1992, Coca-Cola used a hybrid system. For customers
whose accounts exceeded four million dollars, the company employed advance sales
representatives (including the plaintiffs) to sell the products before delivery. Following
the sale, delivery drivers transported Coca-Cola products to the appropriate store. Coca-
Cola’s merchandisers then stocked the shelves and performed other merchandising tasks.
For smaller accounts, Coca-Cola distributed its products through route sales drivers.
These drivers visited stores, sold the product, stocked the shelves, displayed
advertisements, and performed all the other required merchandising.
In April 1992, Coca-Cola changed its distribution system such that individuals
known as account managers (including the plaintiffs) sold products for both large and
small accounts prior to delivery. Under this “presale” system, the account managers
visited large grocery stores, convenience stores, and mass merchandisers, sold Coca-Cola
products, and performed various merchandising tasks. For the larger grocery store and
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mass merchandiser accounts, Coca-Cola assigned merchandisers to perform various
merchandising tasks. Coca-Cola did not assign merchandisers to the smaller accounts,
and, at these locations, the account managers performed the necessary merchandising
tasks themselves. The account managers frequently performed these tasks at the larger
accounts as well.
In their work as advance sales representatives and account managers, the plaintiffs
typically arrived at Coca Cola’s offices at about 5:00 a.m. After attending a sales
meeting, they gathered advertising materials from a storeroom and loaded them into
station wagons supplied by the company. They then visited ten to fifteen grocery stores,
fifteen to twenty convenience stores, and a few mass merchandisers. At the grocery
stores and mass merchandisers, they inspected product displays and advertising and then
determined the amount of available inventory. At certain stores, the plaintiffs also set up
advertising materials. After performing these tasks, they spoke to store managers about
subsequent deliveries, obtaining approval for Coca-Cola to ship additional products.
Delivery drivers then transported the Coca-Cola products to stores, and the merchandisers
performed various tasks associated with displaying and promoting the products.
From 1991 until 1993, the plaintiffs regularly worked more than forty hours a
week as advance sales representatives and account managers. Their hours ranged from an
average low of fifty-five hours per week to an average high of seventy-two hours per
week. Coca-Cola paid them a salary, bonuses, and commissions. Because Coca-Cola
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considered them to be exempt from the requirements of the FLSA, the plaintiffs did not
receive overtime compensation. In contrast, Coca-Cola viewed delivery drivers and
merchandisers as subject to the FLSA and paid them overtime.
The plaintiffs filed this action in July 1993, alleging that Coca-Cola had violated
the FLSA by failing to pay them overtime compensation. Coca-Cola responded that the
FLSA’s overtime compensation requirements were not applicable to the plaintiffs because
of the statutory exemptions governing outside salesmen and motor carriers and because of
the exemption governing positions consisting of a combination of two or more exempt
jobs.
After a bench trial, the district court issued a memorandum opinion rejecting Coca-
Cola’s arguments under each of the claimed exemptions and concluding that the plaintiffs
were entitled to overtime compensation under the FLSA. The court also rejected Coca-
Cola’s argument that the plaintiffs’ damages should be calculated on the basis of the
“fluctuating work week method,” under which a successful plaintiff receives overtime
compensation at only half his or her regular rate (instead of the usual one-and-a-half times
his or her regular rate). See 29 C.F.R. § 778.114 (discussing the fluctuating work week
method). Finally, the court rejected the plaintiffs’ argument that they were entitled to
liquidated damages, reasoning that Coca-Cola had demonstrated that it acted in good faith
and had reasonable grounds for believing that its actions did not violate the FLSA.
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II. DISCUSSION
Congress enacted the FLSA, 29 U.S.C. § 201-219, in order to improve “labor
conditions detrimental to the maintenance of the minimum standard of living necessary
for the health, efficiency, and general well-being of workers.” 29 U.S.C. § 202(a). In
furtherance of this aim, the FLSA established a minimum wage, required overtime pay in
certain instances, and prohibited child labor. See 29 U.S.C. §§ 206, 207, 212.
In spite of these broad remedial aims, Congress concluded that not all workers
required the same kind of protection. It exempted from the FLSA’s requirements “any
employee employed in a bonafide executive, administrative, or professional capacity . . . ,
or in the capacity of outside salesman (as such terms are defined and delimited from time
to time by regulations of the Secretary [of Labor]. . . .)” 29 U.S.C. § 213(a)(1).
Exercising that delegated authority, the Secretary has promulgated a series of
regulations that define these exemptions. 29 C.F.R. § 541.500 defines the term “outside
salesman” as:
any employee:
(a) who is employed for the purpose of and who is
customarily and regularly engaged away from his employer’s
place or places of business in:
(1) making sales within the meaning of section
3(k) of the Act; or
(2) Obtaining orders or contracts for services or
for the use of facilities for which a
consideration will be paid by the client or
customer; and
(b) Whose hours of work of a nature other than that described
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in paragraph (a)(1) or (2) of this section do not exceed 20
percent of the hours worked in the workweek by nonexempt
employees of the employer: Provided, That work performed
incidental to and in conjunction with the employee’s own
outside sales or solicitations, including incidental deliveries
and collections, shall not be regarded as nonexempt work.
(emphasis added).
In the district court proceedings, Coca-Cola contended that the plaintiffs were
“outside salesmen” under the definition set forth in § 541.500. The company focused on
the proviso of subsection (b), arguing that although the plaintiffs performed some
merchandising tasks, those tasks were “incidental to and in conjunction with” their sales
of Coca-Cola products. Significantly, in the district court proceedings, there was no
dispute as to either subsection (a) of § 541.500 or the first part of subsection (b). The
parties agreed that the plaintiffs were employed for the purpose of selling Coca-Cola’s
products and that they were regularly and customarily engaged in that activity away from
Coca-Cola’s offices. See 29 C.F.R. § 541.500. They also agreed that the time that the
plaintiffs spent performing work of a nonexempt nature (i.e. merchandising) exceeded
twenty percent of the hours worked by nonexempt workers (i.e. merchandisers). Thus,
the district court’s determination of whether the plaintiffs were outside salesmen
depended entirely upon the question raised by § 541.500(b)’s proviso–whether the
plaintiffs’ merchandising tasks were “incidental to and in conjunction with” their sales of
Coca-Cola products.
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In its memorandum opinion, the district court concluded that Coca-Cola had failed
to establish that the plaintiffs’ merchandising activities were “incidental to and in
conjunction with” their own sales. The court cited testimony “that merchandising was
primarily done because customers expected it to be done and that merchandising
increased the sale of Coca-Cola products in general.” Aplt’s App. at 16-17. Additionally,
the court noted that merchandising activities occupied anywhere from twelve to forty-one
hours of the plaintiffs’ time each week. Id. at 17 n.5. Noting that “incidental” means
“occurring or apt to occur as an unpredictable or minor concomitant” or “of a minor,
casual, or subordinate nature,” see id. (quoting Webster’s II New Riverside University
Dictionary 618 (1984)), the court said that “[a]n activity that consumes anywhere from 20
to 65 percent of an employee’s workday cannot be said to be a minor occurrence.” Id. It
therefore concluded that the plaintiffs were not outside salesmen under the FLSA.
On appeal, Coca-Cola argues that the district court erred in applying the phrase
“incidental to and in conjunction with” in the proviso of 29 C.F.R. § 541.500(b). Under
the Department of Labor’s regulations, Coca-Cola maintains, the merchandising work
performed by the plaintiffs, though often time-consuming, was still incidental to and in
conjunction with their own sales of Coca-Cola products; as a result, the plaintiffs’
merchandising responsibilities do not defeat the outside salesman exemption.
In response, the plaintiffs maintain that Coca-Cola’s reading of the outside
salesman exemption conflicts with the policies underlying the FLSA. The plaintiffs
8
observe that, under Coca-Cola’s reading of the applicable regulations, merchandising
work could be exempt from the FLSA when performed by outside salesmen but governed
by the FLSA when performed by merchandisers. Such an interpretation, the plaintiffs
contend, allows Coca-Cola to avoid the overtime compensation requirements of the FLSA
entirely by exploiting the distinction between merchandisers and account managers. They
observe that under Coca-Cola’s reading of the regulations, the company would be
permitted to employ non-exempt merchandisers for only forty hours a week while
requiring account managers (who are exempt as outside salesmen under Coca-Cola’s
interpretation of the FLSA) to work more than forty hours a week in order to complete the
merchandising work left undone by the merchandisers.
In light of the parties’ arguments, the question before us is the same one presented
to the district court: whether the plaintiffs’ merchandising activities were “incidental to
and in conjunction with” their sales of Coca-Cola products such that the plaintiffs were
covered by the FLSA exemption for outside salesmen. We review the district court’s
resolution of this legal question de novo, see Sanders v. Elephant Butte Irrigation District,
112 F.3d 468, 470 (10th Cir. 1997), but we examine the underlying factual determinations
for clear error. Id. Additionally, in light of the FLSA’s broad remedial aims, exemptions
must be narrowly construed. Carpenter v. City & County of Denver, Colo., 82 F.3d 353,
355 (10th Cir. 1996) (citing Mitchell v. Lublin, McGaughy, & Assocs., 358 U.S. 207, 211
(1959)). As the employer, Coca-Cola bears the burden of proving that particular
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employees fit “‘plainly and unmistakenly within [the exemption’s] terms.’” Reich v.
Wyoming, 993 F.2d 739, 741 (10th Cir. 1993) (quoting Arnold v. Ben Kanowsky, Inc.,
361 U.S. 388, 392 (1960)). However, “the [Department of Labor] regulations are entitled
to judicial deference and are the primary source of guidance for determining the scope of
exemptions to the FLSA.” Spradling v. City of Tulsa, 95 F.3d 1492, 1495 (10th Cir.
1996) (citation omitted).
A. Department of Labor Regulations Regarding Outside Salesmen
As Coca-Cola suggests, the Department of Labor’s regulations provide guidance in
determining what tasks may be considered “incidental to and in conjunction with” the
plaintiffs’ sales of Coca-Cola products. Section 541.503 uses that phrase in the following
manner:
Work performed “incidental to and in conjunction with the
employee’s own outside sales or solicitation” includes not
only incidental deliveries and collections . . . , but also any
other work performed by the employee in furthering his own
sales efforts. Work performed incidental to and in
conjunction with the employee’s own outside sales or
solicitations would include, among other things, the writing of
his sales reports, the revision of his own catalog, the planning
of his itinerary and attendance at sales conferences.
29 C.F.R. § 541.503 (emphasis added).
The subsequent regulations describe in more detail the kinds of activities that are
viewed as “in conjunction with and incidental to” outside sales. See 29 C.F.R. §§
10541.504–541.505. These regulations address promotional work and the work of “driver
salesmen,” who deliver products and make sales. In both instances, a key inquiry is
whether the employee in question actually consummates the sale of his or her employer’s
products at a particular location. If that employee consummates the sale but also
performs a variety of other tasks intended to promote the company’s products but not
directly involving sales, those tasks may still be considered “incidental to and in
conjunction with” those sales. On the other hand, if the employee in question does not
actually consummate the sale at the location in question, then his other activities, even if
closely related to sales, are not “incidental to and in conjunction with” those sales under
the regulations.
For example, the Department of Labor’s regulation regarding promotional work
gives the illustration of a manufacturer’s representative who visits retailers accompanied
by a salesman for a distributor (or “jobber”). If the manufacturer’s representative does
preliminary work (“which may include arranging the stock, putting up a display or poster,
and talking to the retailer for the purpose of getting him to place the order for the
product”), but the distributor’s salesman actually takes the order after the preliminary
work is done, then such work is not incidental to sales made by the manufacturer’s
representative and is not exempt. See 29 C.F.R. § 541.505(c)(2). The same regulation
gives an example of a nonexempt company representative who visits stores in order to
perform promotional work but does not complete the sale of his company’s products:
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[A]nother type of situation involves the company
representative who visits chainstores, arranges the
merchandise on shelves, replenishes stock by replacing old
with new merchandise, consults with the manager as to the
requirements of the store, fills out a requisition for the
quantity wanted and leaves it with the store manager to be
transmitted to the central warehouse of the chainstore
company which later ships the quantity requested. The
arrangement of merchandise on the shelves or the
replenishing of stock is not exempt work unless it is incidental
to and in conjunction with the employee’s own outside sales.
Since the manufacturer’s representative in this instance does
not consummate the sale nor direct his efforts toward the
consummation of a sale (the store manager often has no
authority to buy) this work must be counted as non-exempt.
29 C.F.R. § 541.504 (c)(4) (emphasis added).
The regulation regarding driver salesmen, 29 C.F.R. § 541.505, adopts a similar
approach. It contrasts a route driver who does not make sales at the locations he visits
(and is therefore not covered by the exemption for outside salesmen) with a route driver
who takes orders or obtains commitments for the products he delivers (and is therefore
covered by the exemption):
[A] route driver primarily engaged in making deliveries to his
employer’s customers and performing activities intended to
promote sales by customers, including placing point-of-sale
and other advertising materials, price stamping commodities,
arranging merchandise on shelves or in coolers or cabinets,
rotating stock according to date, and cleaning and otherwise
servicing display cases is not employed in the capacity of
outside salesman by reason of such work. Such work is
nonexempt work for purposes of this part unless it is
performed as an incident to or in conjunction with sales
actually made by the driver to such customers. If the driver
who performs such functions actually takes orders or obtains
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commitments from such customers for the products he
delivers, and the performance of the promotion work is in
furtherance of his own sales efforts, his activities for that
purpose in the customer’s establishment would be exempt
work.
29 C.F.R. § 541.505(d) (emphasis added).
Courts considering the outside salesman exemption have applied this distinction
between employees who consummate sales at out-of-the-office locations and those
employees who do not consummate sales there. For example, in Skipper v. Superior
Dairies, Inc., 512 F.2d 409, 416 (5th Cir. 1975), the Fifth Circuit reversed a district
court’s ruling that a dairy product distributor’s routeman was covered by the outside
salesman exemption, reasoning that the routeman’s responsibility was to deliver products
in prearranged amounts. The court cited testimony from the district court proceedings
indicating that the sale of the dairy products was made not by the routeman but by other
individuals in the company. See id. at 414-415. In an earlier case, the Sixth Circuit
reached a similar conclusion, holding that a soft drink bottler’s routeman was not covered
by the outside salesman exemption because the routeman did not solicit orders and
because the managers of the stores that he visited lacked the authority to enter into
binding sales agreements with the routeman. See Hodgson v. Klages Coal & Ice Co., 435
F.2d 377, 383 (6th Cir. 1970). In contrast, other courts have concluded that driver-
salesmen who make sales of their employers’ products at the locations they visit are
covered by the outside salesman exemption. See, e.g., Hodgson v. Krispy Kreme
13
Doughnut Co., 346 F. Supp. 1102, 1107 (M.D.N.C. 1972).
B. The Outside Salesman Exemption in this Case
In the case before us, the record indicates that, as advance sales representatives and
account managers, the plaintiffs consummated the sales of Coca-Cola products at the
stores that they visited. In this regard, we note that the parties have not challenged the
district court’s conclusion that the plaintiffs were employed for the purpose of selling
Coca-Cola products and were regularly engaged in that activity. The parties also have not
challenged the district court’s description of Coca-Cola’s distribution systems and of the
plaintiffs’ sales responsibilities under those systems. Moreover, in testimony at trial,
several of the plaintiffs described their taking of orders for company products from store
managers. See Aplt’s App. at 85, 152. There is no evidence in the record that sales of
Coca-Cola products at stores visited by the plaintiffs were made by any other Coca-Cola
employees, and neither in the district court proceedings nor in this appeal have the
plaintiffs disputed the proposition that it was through their own transactions with
personnel from stores carrying Coca-Cola products that sales were accomplished. The
plaintiffs thus resemble the exempt “driver salesman” identified in 29 C.F.R. §
541.505(d), an employee who “actually takes orders or obtains commitments from . . .
customers.” In light of their authority to effect sales at the stores they visited, plaintiffs
may be contrasted with the nonexempt manufacturer’s representative discussed in 29
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C.F.R. § 541.504 (c)(4)–the one who “does not consummate the sale nor direct his efforts
toward the consummation of a sale.”
Because the plaintiffs consummated sales of Coca-Cola products at the stores they
visited, the work that they performed in promoting those sales is “incidental to and in
conjunction with” those sales under the Department of Labor’s regulations. See 29
C.F.R. § 541.504 (a) (stating that “any promotional work which is actually performed
incidental to and in conjunction with an employee’s own outside sales or solicitations is
clearly exempt work. On the other hand, promotional work which is incidental to sales
made, or to be made, by someone else cannot be considered as exempt work.”); 29 C.F.R.
§ 541.505(d) (stating that promotion work and delivery work are exempt if incidental to
and in conjunction with the employee’s own sales or efforts to sell). Here, the plaintiffs
have not disputed Coca-Cola’s contention that their various merchandising tasks
promoted sales of Coca-Cola products at the stores they visited. Instead, they argue only
that because merchandising work is considered non-exempt if performed by
merchandisers, it should also be considered non-exempt when performed by outside
salesmen. See Aplee’s Br. at 14-17. This argument misconstrues the Department of
Labor regulations, which provide that promotional work performed by employees who
consummate sales may be covered by the outside salesman exemption even if the same
work would not be exempt if performed by other employees. See, e.g., 29 C.F.R §
541.504(b)(2) (noting that “[i]ncidental promotional activities may be tested by whether
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they are ‘performed incidental to an in conjunction with the employee’s own outside sales
or solicitations’ or whether they are incidental to sales which will be made by someone
else.”). Therefore, we conclude that the plaintiffs’ merchandising work was “incidental
to and in conjunction with” their outside sales of Coca-Cola products under the proviso of
§ 541.500(b). As a result, in spite of their merchandising work, the plaintiffs are covered
by the outside salesman exemption.
In reaching the contrary conclusion, the district court relied on testimony that
“merchandising was primarily done because the customers expected it to be done and that
merchandising increased the sales of Coca-Cola products in general.” Aplt’s App. at 16-
17. Although we do not dispute the district court’s characterization of this testimony, we
note that neither the fact that the plaintiffs were motivated by a desire to please customers
nor the fact that merchandising increased sales of products at other locations is
determinative of what activities are “incidental to and in conjunction with” outside sales
under the Department of Labor regulations. Instead, what matters is whether the
plaintiffs--or someone else--sold Coca-Cola products at the locations where the plaintiffs
performed merchandising activities and whether, if the plaintiffs sold Coca-Cola products
at those locations, their merchandising work promoted those sales.
The district court also relied on the quantity of merchandising work performed by
the plaintiffs in certain weeks, reasoning that an activity that consumes anywhere from
twenty to sixty-five percent of an employee’s work week cannot be characterized as
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incidental. Id. at 17. Although the district court’s reasoning is persuasive under the
dictionary definition of “incidental” on which it relied, that dictionary definition is not
applicable here. Instead, we must apply the phrase as used in the applicable regulations,
which use the phrase “incidental to and in conjunction with” in a manner not directly
correlated to the amount of time expended. See 29 C.F.R. § 541.505 (a) (stating that “[a]
determination of an employee’s chief duty or primary function must be made in terms of
the basic character of the job as a whole” and that “the time devoted to the various duties
is an important, but not necessarily controlling, element”).
We agree with the plaintiffs that, as the Department of Labor regulations are
written and as Coca-Cola has interpreted them, the company may be allowed to avoid
paying overtime in certain instances by assigning merchandising tasks to account
managers rather than to merchandisers. Although such an assignment may be inequitable
and subject to challenge on other grounds, the evidence in this case does not establish a
violation of the FLSA under the current Department of Labor regulations. Because
Congress has delegated the authority to define the FLSA exemptions to the Department of
Labor, and because the plaintiffs have not here challenged those regulations as arbitrary,
capricious, or manifestly contrary to the statute, see Chevron, U.S.A., Inc. v. Natural
Resources Defense Council, Inc., 467 U.S. 837, 844 (1984), our task here is to apply the
exemptions as defined in the regulations.
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III. CONCLUSION
We therefore conclude that the plaintiffs are exempt from the FLSA as outside
salesmen. The district court’s decision is reversed, and the case is remanded to the
district court for further proceedings consistent with this opinion.
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