In a case of first impression in the Seventh Circuit (which includes Indiana, Illinois and Wisconsin), the Court of Appeals held that pharmaceutical companies Eli Lilly & Co. and Abbott Laboratories properly classified their sales representatives under the administrative exemption to the overtime requirements of the Fair Labor Standards Act (“FLSA”). Susan Schaefer-LaRose v. Eli Lilly & Co., 2012 U.S. App. LEXIS 9300 (7th Cir. May 8, 2012), Jirak v. Abbott Laboratories, Inc., 2012 U.S. App. LEXIS 9300. Current and former sales representatives sued their employers, claiming that they were misclassified as exempt employees and denied overtime compensation in violation of the FLSA. The employers contend that both the administrative exemption and the outside sales exemption, 29 U.S.C. § 213(a)(1), remove the sales representatives from the overtime requirements of the FLSA. The Seventh Circuit, observing that the outside sales person exemption issue is before the United States Supreme Court in another case, focused its decision solely on the administrative exemption.
The Plaintiffs argued that they were not exempt from the overtime requirements of the FLSA because they did not actually sell the drugs to the physicians, but merely engaged in promotional and sales-like work focused on a limited, select group of physicians. The Plaintiffs argued that the administrative exemption is designed for higher level employees whose work is targeted at sales, promotional and marketing policies of the company overall. In rejecting the Plaintiffs’ argument, and holding for the employers, the Court of Appeals held that the sales representatives’ work is properly characterized as administrative:
directly related to the general business operations of the employers, which satisfies the second prong of the administrative exemption.
The Court of Appeals, in rejecting the Plaintiffs’ arguments, reasoned that the sales representatives are the public face of their employers in communicating with the most important decision-maker regarding use of the companies’ products – the prescribing physicians. Their goal is to promote sales and their work is based on maintaining continuous and regular contact with the physicians, anticipating their objections and concerns and addressing them on behalf of their employers.
The Court of Appeals also concluded that the primary duty of the sales representatives included “the exercise of discretion and independent judgment with respect to matters of significance” – another requirement for the applicability of the administrative exemption. Specifically, the Court held that although the sales representatives must deliver specific messages to the doctors – in compliance with regulatory requirements applicable to the pharmaceutical industry – the sales representatives must tailor those messages to respond to the circumstances. As such, the representatives were required to exercise “a significant measure of discretion and independent judgment.”
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