Recent Case Law Focuses Heavily on “Outside Salesman” and “Administrative” Exemptions to the Fair Labor Standards Act
The issue of whether pharmaceutical company sales representatives who promote their employer’s products to doctors and hospitals are exempt from the overtime requirements of the Fair Labor Standards Act (“FLSA”) has spurred litigation across the country. Courts have considered whether these employees are entitled to overtime compensation or are exempt under the “outside salesman” or “administrative” exemptions recognized by the FLSA. The results have been inconsistent, leaving employers with many questions. For example, the Second Circuit (covering the states of New York, Connecticut, Vermont) has held that the pharmaceutical company sales representatives at issue did not qualify for either the “outside salesman” or “administrative” exemptions and were entitled to overtime compensation. Conversely, the Ninth Circuit (covering California, Alaska, Arizona, Hawaii, Idaho, Montana, Nevada, Oregon, and Washington) recently held the pharmaceutical sales representatives were exempt from the FLSA’s overtime requirements under the “outside salesman” exemption, noting that the term “sale” must be ready broadly to include employees who “in some sense” sell. The Ninth Circuit ruled that the Department of Labor regulations, which supported a finding that the “outside salesman” exemption applied to the pharmaceutical representatives, were entitled to substantial deference and disagreed with the Second Circuit’s conclusion to the contrary. Most recently, the Third Circuit (covering New Jersey, Pennsylvania and Delaware) held that a pharmaceutical company’s sales representatives qualified for the “administrative” exemption in large part because they “executed nearly all of [their] duties without direct oversight.” Interestingly, despite the different results, the sales representatives at issue in the cases decided by the Second and Third Circuits performed similar functions.
While there are some factual distinctions between the three cases discussed above, the circuit split has left pharmaceutical companies and companies who employ a similar sales forces without clear guidance as to how they should classify sales representatives for purposes of overtime. Such guidance, however, may be available soon. The United States Supreme Court recently agreed to hear an appeal from the Ninth Circuit case. A decision is expected in the spring of 2012.
In the meantime, companies with a workforce within the states covered by the Third Circuit should take note of a recent opinion from of the Eastern District of Pennsylvania, Ibanez v. Abbott Laboratories, which helps add some clarity to the scope of the “administrative” exemption to the FLSA’s overtime pay requirements.
Ibanez v. Abbott Laboratories
In Ibanez, Plaintiff Gerald Ibanez, a former pharmaceutical representative for Abbott Laboratories, Inc., claimed his employer did not pay him overtime because it misclassified its representatives as exempt from overtime requirements. Ibanez sued Abbott Laboratories under the FLSA and the Pennsylvania Minimum Wage Act of 1968 (“PMWA”), which has an administrative exemption provision that substantially mirrors that of the FLSA. Defendant Abbott Laboratories brought a motion for summary judgment, arguing that, under existing Third Circuit precedent, Ibanez was exempt from the overtime requirements under the administrative exemption.
Before discussing Ibanez’s specific duties as a pharmaceutical representative, the Court analyzed the statutory requirements of the FLSA’s administrative exemption provision. Essentially, this provision exempts from overtime pay those employees whose “primary duty includes the exercise of discretion and independent judgment with respect to matters of significance,” among other requirements.
Relying on two recent decisions within the Third Circuit dealing specifically with the administrative exemption as applied to pharmaceutical sales representatives, the Ibanez Court found that Plaintiff was an exempt employee falling under both the FLSA and PMWA’s administrative exemption provision. Critical to the Court’s conclusion in this regard was a finding that the Plaintiff’s engaged in
“short- and long-term business planning, including (but not limited to):
- Utilizing available resources to plan and implement strategies to drive business in [Plaintiff’s] territory, including frequent analysis of reports from the home office and the creation of a focused specific business plan;
- Developing solid plans to allocate and direct resources to keep physicians and drive business;
- Developing and utilizing key opinion leaders;
- Developing focus plans to direct resources to physicians that would bring the highest ROI;
- Participated in the creation of business plans which tracked doctors by market share and potential.”
Granting the Defendant’s motion for summary judgment, the District Court reasoned that “[t]hese activities [ ] are consistent with relevant definitions of exempt administrative work because they affect Defendant’s business operations to a substantial degree, and involve sales and promotional work on behalf of Defendant that reflect the exercise of discretion and independent judgment with respect to matters of significance.”
Until the Supreme Court resolves the question of whether pharmaceutical sales representatives who promote products are subject to any of the exemptions recognized by the FLSA, companies with similar sales representatives should be cautious when classifying such employees as exempt or nonexempt. Please feel free to contact any one of the attorneys in the Gibbons Employment and Labor Law Department should your company have any questions.