ILNews

Federal courts rule against overtime in pharmaceutical cases

Back to TopCommentsE-mailPrintBookmark and Share

In a pair of decisions, the U.S. Supreme Court and the 7th Circuit Court of Appeals examined different exemption provisions to overtime requirements of the Fair Labor Standards Act but reached the same conclusion: Pharmaceutical sales representatives are not entitled to overtime pay.

The Supreme Court considered the outside salesman exemption in Christopher, et al. v. SmithKline Beecham Corp., 11-204, while the 7th Circuit reviewed the administrative exemption in Susan Schaefer-LaRose v. Eli Lilly & Co., 10-3855. Both courts sided with the employers, finding that although pharmaceutical “detailers,” as they are called in the drug-making industry, worked under heavy regulations and constraints, they did meet the overtime exemption requirements outlined in the FLSA.

guevara Guevara

Attorneys familiar with the two rulings point to broader implications that the cases hold, which could guide future decisions on wage-and-hour lawsuits as well as the behaviors of federal agencies.

In addition, the decisions come at a time when lawsuits filed under the FLSA are increasing. These types of cases have been growing: 1,961 cases were filed in the reporting year that ended March 2001, according to a report in Law360. The total hit 7,006 new cases filed during the reporting year that concluded March 2011 and rose again to 7,064 in the reporting year that finished March 31, 2012.

Eli Lilly & Co.

The 7th Circuit combined the Eli Lilly case with two others involving Illinois-based Abbott Laboratories. In these cases, the plaintiffs claimed they were misclassified as exempt and were due overtime pay. The defendants argued the employees were not entitled to overtime under both the administrative exemption and the outside sales exemption.

Since the Supreme Court was already looking at the outside sales provision, the 7th Circuit concentrated on the administrative exemption. Under this section of the FLSA, the administrative exemption applies to employees who do office or non-manual work directly related to the management or general operations of the company and who exercise discretion and independent judgment in matters of significance.

Ellen Boshkoff, partner at Faegre Baker Daniels LLP, was the lead counsel for Lilly. James O’Brien III, counsel at Seeger Weiss, was the lead counsel for Susan Schaefer-LaRose.

The plaintiff in the case had worked for Lilly from 1988 to 2006 and was frustrated by the long hours that often necessitated working on weekends and holidays, O’Brien said. She had to travel a great deal and was required to be in the field calling on physicians from 8 a.m. to 5 p.m. which meant she had to use her evening hours to complete the paperwork.

Seeger Weiss sent letters to 777 former and current sales representatives at Lilly, and 388 joined the Schaefer-LaRose case.

These plaintiffs maintained they did not meet the standard for exercising discretion and independent judgment because they had to perform their jobs according to precise regulations set forth by the U.S. Food and Drug Administration and by their employer.

In its opinion, the 7th Circuit reserved the District Court’s ruling in Abbott and upheld the ruling of the Southern District of Indiana in the Lilly case. The 7th Circuit found that although the sales personnel must deliver the pharmaceutical companies’ messages with precision, they are not “simple mouthpieces, reciting scripts.” They are given extensive education and training, work under minimal supervision, and must tailor their messages to respond to the circumstances.

The 7th Circuit’s ruling marks the ninth consecutive decision, stretching over 63 years, in which the court found the employee at issue was not entitled to overtime under the administrative exemption, according to O’Brien. Not since its 1949 opinion in McComb v. Robert W. Hunt Co., 172 F.2d 751 (7th Cir. 1949), has the court held that an employee did not perform administratively exempt work, he said.

Boshkoff believes the ruling from the 7th Circuit, as well as from the Supreme Court, will provide guidance not just in cases involving pharmaceutical sales representatives but for anyone seeking clarification of the administrative exemption. It is an important case, she said, that people will use when applying the administrative exemption to employees in such positions as human resources, marketing, accounting and procurement.

SmithKline Beecham Corp.

Focusing on the outside sales exemption, the Supreme Court rejected the plaintiffs’ argument that their job duties do not meet the standard of selling. Pharmaceuticals detailers are barred from directly selling drugs by federal law, so they solicit nonbinding commitments from physicians to prescribe the product.

boshkoff Boshkoff

The court held that what the detailers were doing did meet FLSA’s broad definition of “outside salesman” which allows a “nonbinding commitment” to qualify as a sale. They were functioning as sales representatives, even though they were not actually selling pharmaceuticals, in part because they received a commission based on the number of prescriptions written.

A key element to the ruling is the Supreme Court’s decision not to give deference to the U.S. Department of Labor’s interpretation of the outside salesman exemption. The court faulted the agency for changing its reasoning over what constitutes a sale in the briefs it filed with the lower courts and held the interpretation “lacks the hallmarks of thorough consideration.” In addition, it noted that the department first announced its position in a series of amicus briefs which did not provide the opportunity for public comment.

Greg Guevara, partner in the labor and employment group at Bose McKinney & Evans LLP, sees this decision as reminding the labor department to make regulations through the established due process instead of in the courts.

“The broader implications are that the Supreme Court essentially said to the Department of Labor that if they want to take a position regarding the Fair Labor Standards Act, they need to do this through the formalized rulemaking process rather than through litigation,” Guevara said. “I think the potential ramification is if there is going to be a change in the way that the white collar exemptions are interpreted, it is more likely the Department of Labor is going to pursue the change through the rulemaking process.”

The federal agency filed briefs on behalf of the plaintiffs in the cases, but the 7th Circuit did not consider the department’s amicus brief because it determined the regulations regarding the administrative exemption were unambiguous.

On the other hand, the Supreme Court noted that while deference is usually given to an agency’s interpretation of its own “ambiguous regulation,” giving deference in the SmithKline Beecham case to the department’s interpretation of the outside sales exemption would bring an “‘unfair surprise’ against which this Court has long warned.”

The court highlighted that the pharmaceutical industry has treated its detailers as exempt outside salesmen for decades and the Department of Labor never brought any enforcement action. In turn, the “only plausible explanation” for the department’s inaction is that it accepted the practice. •
 

ADVERTISEMENT

  • NAXIDEX DEXAMETHASONE WARNING
    I had eye surgery and in the post-op pack was MAXIDEX(dexamethasone) drops by ALCON LABS TWO days later I was BLIND Use Google and enter MAXIDEX LOSS OF VISION to verify or call 800-757-9195

Post a comment to this story

COMMENTS POLICY
We reserve the right to remove any post that we feel is obscene, profane, vulgar, racist, sexually explicit, abusive, or hateful.
 
You are legally responsible for what you post and your anonymity is not guaranteed.
 
Posts that insult, defame, threaten, harass or abuse other readers or people mentioned in Indiana Lawyer editorial content are also subject to removal. Please respect the privacy of individuals and refrain from posting personal information.
 
No solicitations, spamming or advertisements are allowed. Readers may post links to other informational websites that are relevant to the topic at hand, but please do not link to objectionable material.
 
We may remove messages that are unrelated to the topic, encourage illegal activity, use all capital letters or are unreadable.
 

Messages that are flagged by readers as objectionable will be reviewed and may or may not be removed. Please do not flag a post simply because you disagree with it.

Sponsored by
ADVERTISEMENT
Subscribe to Indiana Lawyer
  1. From back in the day before secularism got a stranglehold on Hoosier jurists comes this great excerpt via Indiana federal court judge Allan Sharp, dedicated to those many Indiana government attorneys (with whom I have dealt) who count the law as a mere tool, an optional tool that is not to be used when political correctness compels a more acceptable result than merely following the path that the law directs: ALLEN SHARP, District Judge. I. In a scene following a visit by Henry VIII to the home of Sir Thomas More, playwriter Robert Bolt puts the following words into the mouths of his characters: Margaret: Father, that man's bad. MORE: There is no law against that. ROPER: There is! God's law! MORE: Then God can arrest him. ROPER: Sophistication upon sophistication! MORE: No, sheer simplicity. The law, Roper, the law. I know what's legal not what's right. And I'll stick to what's legal. ROPER: Then you set man's law above God's! MORE: No, far below; but let me draw your attention to a fact I'm not God. The currents and eddies of right and wrong, which you find such plain sailing, I can't navigate. I'm no voyager. But in the thickets of law, oh, there I'm a forester. I doubt if there's a man alive who could follow me there, thank God... ALICE: (Exasperated, pointing after Rich) While you talk, he's gone! MORE: And go he should, if he was the Devil himself, until he broke the law! ROPER: So now you'd give the Devil benefit of law! MORE: Yes. What would you do? Cut a great road through the law to get after the Devil? ROPER: I'd cut down every law in England to do that! MORE: (Roused and excited) Oh? (Advances on Roper) And when the last law was down, and the Devil turned round on you where would you hide, Roper, the laws being flat? (He leaves *1257 him) This country's planted thick with laws from coast to coast man's laws, not God's and if you cut them down and you're just the man to do it d'you really think you would stand upright in the winds that would blow then? (Quietly) Yes, I'd give the Devil benefit of law, for my own safety's sake. ROPER: I have long suspected this; this is the golden calf; the law's your god. MORE: (Wearily) Oh, Roper, you're a fool, God's my god... (Rather bitterly) But I find him rather too (Very bitterly) subtle... I don't know where he is nor what he wants. ROPER: My God wants service, to the end and unremitting; nothing else! MORE: (Dryly) Are you sure that's God! He sounds like Moloch. But indeed it may be God And whoever hunts for me, Roper, God or Devil, will find me hiding in the thickets of the law! And I'll hide my daughter with me! Not hoist her up the mainmast of your seagoing principles! They put about too nimbly! (Exit More. They all look after him). Pgs. 65-67, A MAN FOR ALL SEASONS A Play in Two Acts, Robert Bolt, Random House, New York, 1960. Linley E. Pearson, Atty. Gen. of Indiana, Indianapolis, for defendants. Childs v. Duckworth, 509 F. Supp. 1254, 1256 (N.D. Ind. 1981) aff'd, 705 F.2d 915 (7th Cir. 1983)

  2. "Meanwhile small- and mid-size firms are getting squeezed and likely will not survive unless they become a boutique firm." I've been a business attorney in small, and now mid-size firm for over 30 years, and for over 30 years legal consultants have been preaching this exact same mantra of impending doom for small and mid-sized firms -- verbatim. This claim apparently helps them gin up merger opportunities from smaller firms who become convinced that they need to become larger overnight. The claim that large corporations are interested in cost-saving and efficiency has likewise been preached for decades, and is likewise bunk. If large corporations had any real interest in saving money they wouldn't use large law firms whose rates are substantially higher than those of high-quality mid-sized firms.

  3. The family is the foundation of all human government. That is the Grand Design. Modern governments throw off this Design and make bureaucratic war against the family, as does Hollywood and cultural elitists such as third wave feminists. Since WWII we have been on a ship of fools that way, with both the elite and government and their social engineering hacks relentlessly attacking the very foundation of social order. And their success? See it in the streets of Fergusson, on the food stamp doles (mostly broken families)and in the above article. Reject the Grand Design for true social function, enter the Glorious State to manage social dysfunction. Our Brave New World will be a prison camp, and we will welcome it as the only way to manage given the anarchy without it.

  4. When I hear 'Juvenile Lawyer' I think of an attorney helping a high school aged kid through the court system for a poor decision; like smashing mailboxes. Thank you for opening up my eyes to the bigger picture of the need for juvenile attorneys. It made me sad, but also fascinated, when it was explained, in the sixth paragraph, that parents making poor decisions (such as drug abuse) can cause situations where children need legal representation and aid from a lawyer.

  5. Some in the Hoosier legal elite consider this prayer recommended by the AG seditious, not to mention the Saint who pledged loyalty to God over King and went to the axe for so doing: "Thomas More, counselor of law and statesman of integrity, merry martyr and most human of saints: Pray that, for the glory of God and in the pursuit of His justice, I may be trustworthy with confidences, keen in study, accurate in analysis, correct in conclusion, able in argument, loyal to clients, honest with all, courteous to adversaries, ever attentive to conscience. Sit with me at my desk and listen with me to my clients' tales. Read with me in my library and stand always beside me so that today I shall not, to win a point, lose my soul. Pray that my family may find in me what yours found in you: friendship and courage, cheerfulness and charity, diligence in duties, counsel in adversity, patience in pain—their good servant, and God's first. Amen."

ADVERTISEMENT