Wage and Hour Law Update : Wage & Hour Lawyer & Attorney : Jackson Lewis Law Firm : Minimum Wage, Overtime & Service Contracts

While the pharmaceutical industry is focused on the Supreme Court’s upcoming decision in Christopher, as to whether the work performed by pharmaceutical sales representatives (PSRs) for GlaxoSmithKline qualified for the outside sales exemption, another circuit court has weighed in on the duties of PSRs and their FLSA status in the context of the administrative exemption. The Seventh Circuit has joined the Third Circuit in finding that the PSRs’ work is administrative because it both qualifies as office or non-manual work related to the business operations of the pharmaceutical company, and requires the customary and regular exercise of discretion and independent judgment. Schaefer-Larose v. Eli Lilly & Co., 2012 U.S. App. LEXIS 9300 (7th Cir. 2012).

In the Seventh Circuit’s view, the work of Eli Lilly’s PSRs is related to the company’s general business operations because they 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. They do not make individual sales of medications, but ensure, on a continuing basis, that the medical community is fully aware of the potential of the company's pharmaceutical  products and that the same community is confident that the company's products will be effective tools in the practical setting of a medical practice.” Because the company required the PSRs to possess a “solid understanding of the message that they were delivering if they were to fulfill their roles as the company's representative to the community of practicing physicians,” their work clearly entailed discretion and independent judgment. 

This favorable ruling, and the continually expanding body of legal decisions analyzing the exempt status of PSRs provides an interesting case study for both pharmaceutical industry employers as well as employers in other industries analyzing the exempt status of their sales force. Courts however continue to struggle with whether certain categories of sales and marketing work is “sales” work for purposes of the production/administration dichotomy and, if so, whether it can be administrative under DOL regulations. The Seventh Circuit has answered this question in the affirmative Id. at fn. 23.

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As the pharmaceutical community eagerly awaits the Supreme Court’s decision whether to grant certiorari in Christopher v. SmithKline Beecham Corp., courts within the Third Circuit (encompassing Pennsylvania, New Jersey and Delaware) continue to conform to the appeals court’s previous holding in Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir. 2010), that pharmaceutical representatives meet the test for the administrative exemption under federal and Pennsylvania law. See Ibanez v. Abbott Labs., Inc., 2011 U.S. Dist. LEXIS 131945 (E.D. Pa. Nov. 14, 2011).

In Ibanez, as in previous cases such as Smith and Baum v. AstraZeneca LP, 372 Fed. Appx. 246 (3d Cir. 2010), the court determined that “plaintiff regularly exercised discretion and independent judgment in all aspects of his job, including pre-call planning, interactions with physicians, territory business planning, and the planning of events.” rejected plaintiff’s reliance on U.S. Department of Labor guidance concerning the applicability of the administrative exemption to positions and duties allegedly analogous to the PSR position. Some courts, relying on this guidance, have narrowly interpreted the exemption to apply principally (if not solely) to operational employees such as Human Resources, Accounting or Information Technology. ]

The continuing “wave” of wage-and-hour litigation seeking to find PSR’s non-exempt presents an important case study for employers in other industries, where assumptions about the exempt status of particular classifications of employees persist. A preventive audit is often the only way to detect potential wage-and-hour exposures (individual and/or class-wide) and make changes before they are identified via costly litigation.  As to PSR’s, the issue only will be resolved if the Supreme Court grants certiorari and provides guidance to the industry as to the applicability of both the administrative and outside sales exemptions.

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