Although the Supreme Court will soon decide whether pharmaceutical sales representatives (PSRs) may qualify for the Fair Labor Standards Act’s “outside sales” exemption from overtime pay, the 7th U.S. Circuit Court of Appeals ruled in early May that PSRs could be exempt from the FLSA under the law’s “administrative exemption” (Schaefer La-Rose v. Eli Lilly & Co., No. 10-3855 (7th Cir., May 8, 2012); and Jirak v. Abbott Lab., Inc., Nos. 11-1980 & 11-2131 (7th Cir. May 8, 2012)). In so finding, the 7th Circuit was able to resolve the issue without having to wait for the Supreme Court’s decision.
The employees in the case claimed that that they were misclassified as exempt employees and denied overtime pay. The employers argued that both the administrative exemption and the outside sales exemption applied to the reps, thus removing them from the FLSA’s overtime protection.
The administrative exemption requires employees to:
- be compensated on a salary or fee basis at a rate of not less than $455 per week;
- have the primary duty of performing office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers; and
- exercise discretion and independent judgment on matters of significance when performing his/her primary duty.
Since there was no dispute about the salary of PSRs (prong 1), the court’s opinion focused on prongs (2) and (3).
Work ‘Directly Related’ to ‘Management or General Business Operations’
The court emphasized that “the representatives 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.” Therefore, the PSRs’ work did directly relate to the running of the pharmaceutical company. Unlike selling a general product in a retail establishment, PSRs have specific skill sets, and, more importantly, exercise discretion and independent judgment when performing their jobs.
Primary Duty Includes the Exercise of Discretion and Independent Judgment
Although the pharmaceutical companies gave the PSRs call plans and information related to sales pitches, several PSRs testified that they strategize their work, choosing to see physicians not on their call plans or non-physicians who may influence prescribing patterns. The PSRs also testified that they were unsupervised about 95 percent of the time: working collaboratively with one another, proposing comprehensive visit plans, checking in with each other and learning about each other’s’ specific physician visits.
The case highlights the importance of control in an employer-employee relationship. Because so much of the PSRs’ job duties were independently performed, the court was more inclined to find these employees exempt from FLSA protection.