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. Call it unauthorized law if you must, a regulatory wrong, but it was fraud and theft well beyond that, a seeming crime! "In three specific cases, the hearing officer found that Westerfield did little to no work for her clients but only issued a partial refund or no refund at all." That is theft by deception, folks. "In its decision to suspend Westerfield, the Supreme Court noted that she already had a long disciplinary history dating back to 1996 and had previously been suspended in 2004 and indefinitely suspended in 2005. She was reinstated in 2009 after finally giving the commission a response to the grievance for which she was suspended in 2004." WOW -- was the Indiana Supreme Court complicit in her fraud? Talk about being on notice of a real bad actor .... "Further, the justices noted that during her testimony, Westerfield was “disingenuous and evasive” about her relationship with Tope and attempted to distance herself from him. They also wrote that other aggravating factors existed in Westerfield’s case, such as her lack of remorse." WOW, and yet she only got 18 months on the bench, and if she shows up and cries for them in a year and a half, and pays money to JLAP for group therapy ... back in to ride roughshod over hapless clients (or are they "marks") once again! Aint Hoosier lawyering a great money making adventure!!! Just live for the bucks, even if filthy lucre, and come out a-ok. ME on the other hand??? Lifetime banishment for blowing the whistle on unconstitutional governance. Yes, had I ripped off clients or had ANY disciplinary history for doing that I would have fared better, most likely, as that it would have revealed me motivated by Mammon and not Faith. Check it out if you doubt my reading of this, compare and contrast the above 18 months with my lifetime banishment from court, see appendix for Bar Examiners report which the ISC adopted without substantive review: https://www.scribd.com/doc/299040839/2016Petitionforcert-to-SCOTUS

  2. Wow, over a quarter million dollars? That is a a lot of commissary money! Over what time frame? Years I would guess. Anyone ever try to blow the whistle? Probably not, since most Hoosiers who take notice of such things realize that Hoosier whistleblowers are almost always pilloried. If someone did blow the whistle, they were likely fired. The persecution of whistleblowers is a sure sign of far too much government corruption. Details of my own personal experience at the top of Hoosier governance available upon request ... maybe a "fake news" media outlet will have the courage to tell the stories of Hoosier whistleblowers that the "real" Hoosier media (cough) will not deign to touch. (They are part of the problem.)

  3. So if I am reading it right, only if and when African American college students agree to receive checks labeling them as "Negroes" do they receive aid from the UNCF or the Quaker's Educational Fund? In other words, to borrow from the Indiana Appellate Court, "the [nonprofit] supposed to be [their] advocate, refers to [students] in a racially offensive manner. While there is no evidence that [the nonprofits] intended harm to [African American students], the harm was nonetheless inflicted. [Black students are] presented to [academia and future employers] in a racially offensive manner. For these reasons, [such] performance [is] deficient and also prejudice[ial]." Maybe even DEPLORABLE???

  4. I'm the poor soul who spent over 10 years in prison with many many other prisoners trying to kill me for being charged with a sex offense THAT I DID NOT COMMIT i was in jail for a battery charge for helping a friend leave a boyfriend who beat her I've been saying for over 28 years that i did not and would never hurt a child like that mine or anybody's child but NOBODY wants to believe that i might not be guilty of this horrible crime or think that when i say that ALL the paperwork concerning my conviction has strangely DISAPPEARED or even when the long beach judge re-sentenced me over 14 months on a already filed plea bargain out of another districts court then had it filed under a fake name so i could not find while trying to fight my conviction on appeal in a nut shell people are ALWAYS quick to believe the worst about some one well I DID NOT HURT ANY CHILD EVER IN MY LIFE AND HAVE SAID THIS FOR ALMOST 30 YEARS please if anybody can me get some kind of justice it would be greatly appreciated respectfully written wrongly accused Brian Valenti

  5. A high ranking Indiana supreme Court operative caught red handed leading a group using the uber offensive N word! She must denounce or be denounced! (Or not since she is an insider ... rules do not apply to them). Evidence here: http://m.indianacompanies.us/friends-educational-fund-for-negroes.364110.company.v2#top_info

ADVERTISEMENT