Schaefer–Larose v. Eli Lilly & Co.

• Citation: 679 F.3d 560,19 Wage & Hour Cas.2d (BNA) 1
• Decision Date: 08 May 2012
• Docket Number: 11–1980,11–2131.,Nos. 10–3855,s. 10–3855
• Court: United States Courts of Appeals. United States Court of Appeals (7th Circuit)
• Parties: Susan SCHAEFER–LAROSE, Plaintiff–Appellant, v. ELI LILLY & COMPANY, Defendant–Appellee. James Jirak, et al., Plaintiffs–Appellees, Cross–Appellants, v. Abbott Laboratories, Inc., Defendant–Appellant, Cross–Appellee.

679 F.3d 560

19 Wage & Hour Cas.2d (BNA) 1

Susan SCHAEFER–LAROSE, Plaintiff–Appellant,

v.ELI LILLY & COMPANY, Defendant–Appellee.

James Jirak, et al., Plaintiffs–Appellees, Cross–Appellants,

v.Abbott Laboratories, Inc., Defendant–Appellant, Cross–Appellee.

Nos. 10–3855, 11–1980, 11–2131.

United States Court of Appeals, Seventh Circuit.

Argued Oct. 18, 2011.

Decided May 8, 2012.

James A. O'Brien, III (argued), Attorney, Seeger Weiss LLP, New York, NY, for Plaintiff–Appellant in No. 10–3855.

Ellen E. Boshkoff (argued), Attorney, Faegre Baker Daniels LLP, Indianapolis, IN, for Defendant–Appellee.

Sarah J. Starrett (argued), Attorney, Department of Labor, Office of the Solicitor, Washington, DC, for Amicus Curiae Secretary of Labor.

Terry Rose Saunders, Attorney, Saunders Law Firm, Chicago, IL, for Plaintiffs–Appellees in No. 11–1980.

Brian J. Murray, Daniel E. Reidy (argued), Attorneys, Jones Day, Chicago, IL, for Defendant–Appellant in No. 11–1980.

Michael R. DiChiara, Attorney, DiChiara Law Firm LLC, Montclair, NJ, Terry Rose Saunders, Attorney, Saunders Law Firm, Chicago, IL, Charles Joseph, Attorney, Joseph, Herzfeld, Hester & Kirschenbaum LLP, New York, NY, Eric B. Kingsley (argued), Attorney, Kingsley & Kingsley, APC, Encino, CA, David Sanford, Attorney, Sanford, Wittels & Heisler, LLP, Washington, DC, Ira Spiro, Attorney, Spiro Moss LLP, Los Angeles, CA, for Plaintiffs–Appellants in No. 11–2131.

Brian J. Murray, Attorney, Jones Day, Chicago, IL, for Defendant–Appellee in No. 11–2131.

Before EASTERBROOK, Chief Judge, and RIPPLE and KANNE, Circuit Judges.

RIPPLE, Circuit Judge.

These two cases, which we have consolidated for opinion, involve the application of the outside sales and administrative exemptions of the Fair Labor Standards Act (“FLSA” or the “Act”), 29 U.S.C. §§ 201–19, to pharmaceutical sales representatives employed by Eli Lilly & Co. (“Lilly”) and Abbott Laboratories, Inc. (“Abbott”). The plaintiffs in each case claim that, during their tenure as sales representatives with these pharmaceutical companies, they were misclassified as exempt employees and denied overtime pay, in violation of the statute.¹ The employers contend that both the administrative exemption and the outside sales exemption, 29 U.S.C. § 213(a)(1), remove the sales representatives from the overtime protections of the FLSA. The two district courts in the present cases reached opposite conclusions, each relying on cases decided by other circuits.

Before this court, the Department of Labor (“DOL” or the “Department”) has participated as amicus curiae in case number 10–3855 and has asked us to consider its arguments in our disposition of cases 11–1980 and 11–2131 as well. In the Department's view, the plaintiffs are neither administrative employees nor outside salespersons within the meaning of the statute and the Department's regulations.

After thorough consideration of the positions of the parties, the view of the Department, the opinions of our sister circuits and the facts in the records before us, we conclude that, under the regulations of the Department of Labor, the pharmaceutical sales representatives are classified properly within the administrative exemption to the overtime requirements of the FLSA. Consequently, we do not address the applicability of the outside sales exemption.² We therefore affirm the judgment of the district court in favor of Lilly in case number 10–3855 and reverse the judgment in favor of the plaintiff class in cases 11–1980 and 11–2131 and remand with instructions to enter judgment for Abbott.³

IBACKGROUND

A. Facts⁴

The defendants, Lilly and Abbott, are global companies headquartered in Indiana and Illinois, respectively. They research, manufacture, market and sell pharmaceuticals. The plaintiffs are current and former employees.

To market their pharmaceuticals, Lilly and Abbott employ the plaintiffs and others as “sales representatives,” although the term carries a unique meaning in the context of the pharmaceutical industry.⁵ The primary task of a sales representative is to call upon physicians and to persuade them to prescribe the pharmaceutical products of the representative's employer. Because of the restrictions on pharmaceutical sales under federal law and under medical ethics requirements, the sales representativesactually do not sell any pharmaceuticals to physicians, nor do the physicians upon whom they call actually buy any pharmaceuticals. Instead, in this tightly regulated industry, Lilly, Abbott and their fellow pharmaceutical companies sell their pharmaceuticals to wholesalers, retailers and other facilities such as hospitals and nursing homes that are licensed to dispense the pharmaceuticals in accordance with a physician's written prescription to the end-consumer, the patient. In meeting with the physicians, the objective of the representatives is to increase the number of prescriptions that those physicians write for their employer's products.⁶ An increase in prescriptions written results in an increase in prescriptions filled by end-users and, consequently, an increase in demand for the drug by the dispensing entities from which end-users actually obtain the drug. Sales representatives constitute a substantial part of the workforce of large-scale pharmaceutical manufacturers; Lilly and Abbott currently employ thousands nationwide.

Representatives spend the majority of their time preparing for, making and documenting sales calls, with the consistent goal of obtaining meaningful access to the physicians and of influencing their preference for the company's products. The calls usually take place in target physicians' offices and may, in some cases, last less than a minute. Some physicians refuse to receive representatives from the pharmaceutical industry in their offices, and, in those cases, sales representatives have to find other ways to reach their target. They might attend hospital presentations or sponsor their own educational events where they hope to encounter and to engage difficult-to-reach physicians. Each representative also has a discretionary budget, the significance of which is disputed in the records, to use on meal or speaker programs or other events designed to reach a particular target. In addition, the sales representatives are allocated limited amounts of free pharmaceutical product samples for distribution to physician offices. These samples are a tool that the employers provide to aid the representatives in gaining access to prescribers, but the degree of discretion the representatives exercise in the distribution of these samples is a matter of some dispute. See, e.g., Abbott R.150–2 at 11 (Arri dep. 232) (“I know it's definitely my responsibility to manage my samples.”); Lilly R.43–9 at 175 (Schaefer–LaRose dep. 175) (acknowledging that the decision as to how many samples to leave “was something that you had to decide when you were in the physician's office based on your assessment of the circumstances”).⁷

Prior to visiting a particular physician, a representative develops a pre-call plan. The details of these plans vary widely. During the planning process, a representative may review the physician's prescribing practices, patient population and similar information from data provided by the pharmaceutical company or from notes taken by the representative himself on previous visits. Using this information, a representative evaluates whether prior conversations with the physician have been effective and determines whether any adjustments to his approach are necessary. The representative then identifies a strategy for the call, which generally includes identifying specific questions to use in order to engage the physician in a conversation about the product and selecting appropriate visual aids or literature to pique the physician's interest. See Lilly R.43–17 at 37 (Schaefer–LaRose dep. 178) (describing the necessary planning decisions and stating that “every representative underwent [that process] before making a call”).

The representatives usually focus on a specific specialty—family practice, psychiatry or orthopaedics, for instance. For a specific time frame, the company would instruct them to approach the physicians in that specialty and in their territory regarding a specific product or range of products.⁸ During a sales call, sales representatives use whatever time a physician is willing to give them to speak about one or more of their employer's drugs, including the drug's benefits, its effectiveness, its appropriateness for a given population and similar information. In communicating these facts, the sales force relies on carefully honed messages that originate with the pharmaceutical companies in order to ensure compliance with relevant regulations and preapprovals by the federal Food and Drug Administration (“FDA”). Because of these same concerns, all materials regarding products that are made available publicly are created centrally. Although the sales representatives select which of their employer's materials would best be used for a specific call, they have no authority to generate anything original.

The representatives are expected to engage the physicians in conversation whenever possible. Although the parties have suggested that there is a serious dispute about the degree to which the representatives are “scripted,” it became clear at oral argument that any disagreement is mostly semantic. Core messages must be delivered precisely to ensure compliance with applicable laws and to represent accurately the science of a particular product. Nevertheless, the calls do not follow a predictable course. For example, sales representatives are encouraged to employ sales techniques that tailor the company's core messages most successfully to each physician's schedule, preferences and patient population. Sales representatives must be attentive to the circumstances and responsive to a particular physician's substantive areas of interest or...