Exempt vs Non-Exempt Employee – $17 million Suit for Misclassifying Employees

On September 26, 2011, the California Labor Commissioner filed a $17 million suit against ZipRealty for violations of minimum wage and overtime pay of its real estate agents.

The premise for lawsuit is that ZipRealty misclassified its agents as exempt “outside salespersons” when they were in fact non-exempt employees.  The significant fact here is the allegation that the real estate agents spend less than 50% of their time away from the office.

If the ZipRealty loses, it would be liable for 4 years of unpaid wages, meal and rest break premiums, unpaid overtime, plus other penalties and interests.


What is the difference between exempt vs non-exempt employees?

We’ll take a look at who qualifies as an exempt outside salesperson.

According to Wage Order Nos. 1-2001-16-2001, §2, an outside salesperson is a person age 18 or older who customarily and regularly spends more than half of his or her working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services, or use of facilities.

What the lawyers will spend a lot of time arguing about is what constitutes “working time” and whether these agents spent more then half of it away from the place of business.

Although I am not familiar with the ZipRealty facts, it is likely that the real estate agents spent more than 50% of the their working time reviewing MLS listings, scheduling appointments, and filling out paperwork and less than 50% of their time showing the houses and engaging in “selling” activities outside of the office.

This is just the beginning of a wave of lawsuits against real estate brokerages and other businesses that use a large outside sales force.


Employers – A multi-million dollar lawsuit is a great reminder of the cost of misclassifying your employees.   If you have employees who are classified as exempt outside salespersons, you may want to review their duties and the amount of time spent outside of the office.  Review that information with your employment attorney to ensure that these employees are properly classified.

Employees – If you are a real estate agent or have been classified as an exempt outside salesperson, review your duties and time spent outside of the office to whether you have been properly classified.  You may have a wage and hour claim against your employer.

If you have any questions regarding employee classification, feel free to contact me here or at 949.529.0007.


In: Employment Law

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