Seventh Circuit Weighs in on Pharma Reps’ FLSA Overtime Claim

By Neil Patrick Parent

 We have been tracking Christopher v. SmithKline Beecham Corp., currently before the United States Supreme Court, a case involving whether or not pharmaceutical sales representatives (or “detailers” as they have traditionally been known in the industry), are eligible for overtime wages for hours worked in excess of forty per week under the federal Fair Labor Standards Act or FLSA, 29 U.S.C. §§ 201-19.  In Christopher – an appeal from a decision of the United States Court of Appeals for the Ninth Circuit (635 F.3d 383 (9th Cir. 2011), cert. granted, 132 S. Ct. 760 (Nov. 28, 2100) (No. 11-204)) – SmithKline and the pharma industry contend that the detailers are exempt outside sales representatives under FLSA and therefore are not entitled to overtime pay.  The detailers contend that FLSA’s outside sales representative exclusion does not apply because they do not actually sell the drugs they promote (they are prohibited by law from doing so).  Instead, they call on physicians to educate them on the benefits of their drugs for patients with appropriate conditions and urge the physicians to make non-binding commitments to prescribe the drugs. The drugs are actually sold to wholesalers, who then sell to pharmacies, which in turn, sell to patients who turn up with a physician’s prescription for them.  The Ninth Circuit agreed with the pharmaceutical companies that the outside sales representative exemption applies; however, in another action, the United States Court of Appeals for the Second Circuit (which includes New York) reached the opposite conclusion (In re Novartis Wage and Hour Litig., 611 F.3d 141 (2d Cir. 2010)), and, hence, the Supreme Court granted certiorari (that is, the Court accepted review) to resolve this conflict.  The Court heard oral argument in Christopher on April 16, 2012, and a decision is expected before the end of the Court’s current Term in June. 

 Because of the pending Supreme Court appeal, it came as some surprise that the Seventh Circuit Court of Appeals last week weighed in on the question of the detailers’ exemption, although not the precise question now before the Court.  Specifically, the Seventh Circuit, in an opinion in Schaefer-LaRose v. Eli Lilly & Co., No. 10-3855, found that detailers were exempt and therefore were not entitled to overtime because they fit within FLSA’s “administrative capacity” exemption.  This exemption applies to employees whose “primary duty is the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers,” and who exercise discretion and independent judgment in matters of significance.  29 C.F.R. §541.200(a).   Because the Seventh Circuit found the detailers’ work met these criteria, it held that the administrative capacity exemption applied.  The Seventh Circuit did not, however, address the outside sales representative exemption at issue in Christopher. 

 This raises the possibility of another conflict between the Circuit Courts of Appeals on the issue of the detailers’ exemption because the Second Circuit found for the detailers on both the outside sales and the administrative capacity criteria.  The Christopher case currently before the Supreme Court addresses only the outside sales criterion. Thus, if the Supreme Court rejects the position of the pharmaceutical industry that detailers are exempt outside salespeople and that exemption is no longer available, detailers within the Seventh Circuit (which includes Illinois, as well as Indiana, home of Eli Lilly) would nevertheless continue to be exempt under the administrative capacity exemption; but detailers within the Second Circuit (including New York) would be non-exempt, and the other federal Circuit Courts of Appeal would be free to reach whatever conclusion they deem appropriate under FLSA and applicable regulations.  Thus, the long-awaited Christopher decision may not be the last word on the issue. 

This article is intended only as a general discussion of these issues.  It is not considered to be legal advice or relied upon.  We would be pleased to consider providing additional details or advice about specific situations.  For additional information on this topic, please feel free to call upon any RPL attorney.