Seventh Circuit Holds Pharmaceutical Sales Representatives Are Exempt Under FLSA

On May 8, 2012, the Seventh Circuit became the latest U.S. Circuit Court to weigh in on the exempt status of pharmaceutical sales representatives under the Fair Labor Standards Act (FLSA). In Schaefer-LaRose v. Eli Lilly & Co., a consolidated case considering appeals from divergent district court decisions involving Eli Lilly and Abbott Laboratories sales representatives, the Seventh Circuit held that these representatives are exempt from the FLSA under the administrative exemption. Because it found the representatives exempt under the administrative exemption, the court did not consider whether they also fall under the FLSA's outside sales exemption.

In reaching its decision, the Seventh Circuit analyzed opinions of its fellow Circuit Courts, including those of the Second and Third Circuits addressing the very same issue, and relied heavily on the Department of Labor's published regulations regarding the administrative exemption and the particular factual records of the cases on appeal. The court rejected the arguments of the plaintiffs and the Department of Labor and held that the representatives in the two cases before it — who had job duties like those in similar cases — met the requirements for the administrative exemption.

Specific conclusions reached by the court that supported its holding included: (1) the representatives are responsible for ensuring, on a continuing basis, that the medical community is aware of and confident in the company's products, (2) the representatives are the main conduit for feedback from physicians on the effectiveness or limitations of the company's products, and (3) the representatives had a number of duties committed to their discretion, including determining how to best gain access to the physicians and managing their discretionary budgets. 

The impact of the Schaefer-LaRose case is not certain because of the forthcoming decision from the United States Supreme Court in Christopher v. SmithKline Beecham Corp. After the Ninth Circuit held that pharmaceutical sales representatives fall under the outside sales exemption, the Supreme Court granted certiorari, agreeing to address the following issues: (1) whether deference is owed to the Secretary of Labor's interpretation of the outside sales exemption and related regulations; and (2) whether the FLSA's outside sales exemption applies to pharmaceutical sales representatives. The Supreme Court heard oral argument on the Christopher case on April 16, 2012, and a decision is expected before the end of June 2012.

Although the Christopher case will not consider the administrative exemption, a ruling in favor of SmithKline Beecham on the outside sales exemption would at least partially reduce the impact of the Schaefer-LaRose case: if pharmaceutical sales representatives fall under the outside sales exemption, defendants in other cases will not need to rely solely on the administrative exemption analyzed by the Seventh Circuit in Schaefer-LaRose. If, however, the Supreme Court holds that the outside sales exemption does not apply to pharmaceutical sales representatives, then the substantial analysis of the administrative exemption in Schaefer-LaRose will be particularly useful in future cases addressing exempt status of pharmaceutical sales representatives, both within and outside the Seventh Circuit.

For earlier discussions of the Christopher case and other cases addressing the exempt status of pharmaceutical sales representatives, please see the earlier articles in this series below.

• Pharmaceutical Industry Targeted Again in Case Alleging Misclassification of Sales Representatives
• Supreme Court to Consider Pharmaceutical Sales Representative FLSA Case
• Wage and Hour Collective Actions Extend to Medical Device Manufacturers
• Federal Courts Consider FLSA Exempt Status of Pharmaceutical Sales Representatives