The Seventh Circuit has weighed in on the employers’ side of the pharmaceutical sales representative exemption issue, finding that pharmaceutical sales representatives at Abbott Laboratories, Inc. and Eli Lilly & Company were properly classified as exempt under the administrative exemption to the overtime requirements of the Fair Labor Standards Act (FLSA). In Schaefer-LaRose v. Eli Lilly & Co., the Seventh Circuit issued a consolidated opinion in two cases in which the district courts had reached opposite results, with one court ruling in favor of the plaintiffs and the other ruling against.

Noting that the factual disputes in the cases “are insignificant and, therefore, are not material to the outcome of either case,” the court focused primarily on the application of the U.S. Department of Labor’s (DOL) administrative exemption regulations and case law interpreting the exemption. First, the Seventh Circuit examined whether the sales representatives’ primary duty, as required to meet the criteria of the exemption, was the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, as required by the regulations. Plaintiffs argued that to meet the requirements for the exemption, the sales representatives must be “higher level employees” whose work is targeted at the overall sales, promotional, and marketing policies of the company. Further, they argued that cases that have applied the exemption involved employees who had greater authority regarding strategic design, proposal writing, supervision or other “similar significant responsibilities.” Rejecting these arguments, the Seventh Circuit pointed out that in the preamble to the current regulations, the DOL reaffirmed “the view it has held for more than sixty years that ‘the administrative operations of the business include the work of employees servicing the business, such as, for example, advising the management, planning, negotiating, representing the company, purchasing, promoting sales, and business research and control.’” In this regard, the court noted that the sales representatives “are the principal ongoing representatives of the company to the professional community that is in a unique position to make, or deny, a viable market for the company's product . . . [and] are one of the principal, and perhaps the main conduit by which physicians provide meaningful feedback to the company on the actual effectiveness, and limitations, of the product.” Thus, the Seventh Circuit concluded, the sales representatives’ primary duty was the performance of work directly related to the general operations of the employers’ business.

Next, the court turned to whether the sales representatives’ primary duty required the exercise of discretion and independent judgment with respect to matters of significance. The Seventh Circuit concluded that despite the regulatory constraints imposed on representatives in the pharmaceutical industry, “it is in the core function of the representatives’ duties, the physician office visits, that we see the most important exercise of discretion and professional judgment . . . .” The court found it significant that the sales representatives were largely unsupervised, extensively trained and needed to exercise professional judgment to know when the physicians’ questions required the response of a more knowledgeable person. The court was also persuaded by the discretion the sales representatives employed in planning for sales calls, including what physicians to visit and the degree of frequency and priority of those visits. Indeed, the court noted, the representatives “are sent into physicians’ offices with minimal supervision to engage in conversation with the prescribing physicians who, as a practical matter, are in the most direct position to determine whether their companies’ products have a viable market.”

The Seventh Circuit’s decision provides a thorough and useful analysis of the administrative exemption and its application to pharmaceutical sales representatives. The decision may become even more significant, depending on the U.S. Supreme Court’s analysis of the applicability of the outside sales exemption to pharmaceutical sales representatives in Christopher v. SmithKline Beecham, which is currently pending before the Court.  For more information on the Christopher case, please see Littler’s ASAP, Supreme Court to Decide Significant Case on the Outside Sales Overtime Exemption.

Photo credit: MBPhoto, Inc.