In a significant opinion for the pharmaceutical industry, the U.S. Court of Appeals for the Seventh Circuit found this week that pharmaceutical sales representatives at Eli Lilly and Abbott Laboratories are exempt from overtime under the administrative employee exemption in the Fair Labor Standards Act (“FLSA”).  That exemption applies to employees who 1) primarily perform nonmanual work directly related to the business of the employer, and 2) exercise discretion and independent judgment with respect to matters of significance to the business of the employer.

The Seventh Circuit, rejecting the position of the Department of Labor as amicus curiae, found that the administrative exemption applied because the substantial work of the sales representatives is to prepare for, make, and document their sales calls to physicians to persuade them to prescribe the companies’ products, and that they exercise “significant discretion in the manner and mode of delivery of that message and in the details emphasized” to each physician in the process.  The Court found that the work in question is “directly related to the business of the employer” because the sales employees are directly involved in work that is critical to the success of the pharmaceutical business where they represent the company in its interactions with prescribing physicians, the most important decision makers in terms of the use of the companies’ products.  The Court also found that the exemption applied because the sales representatives exercise a significant measure of unsupervised independent discretion and judgment in setting an itinerary for the daily call schedules and in tailoring their presentations to the individual needs and concerns of the individual physicians they meet with.

Even though the Seventh Circuit’s opinion in the consolidated cases of Schaefer-LaRose v. Eli Lilly & Co. and Jirak, et al. v. Abbott Laboratories, Inc. creates a conflict among the Circuits on this issue, it is of critical importance in light of the fact that the Supreme Court is expected to rule later this Spring in Christopher v. SmithKline Beacham Corp. on the question whether such sales representatives are separately exempt under the outside sales exemption in the FLSA.  While the industry has long contended that its sales representatives are subject to the outside sales exemption even though they do not technically make sales, a negative ruling by the Supreme Court will be of lesser significance to the extent the courts ultimately agree with the Seventh Circuit that the administrative exemption applies.  We can anticipate continued litigation over the administrative exemption unless the Supreme court settles the matter by finding that the outside sales employee exemption applies.