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Seventh Circuit Rules that Pharma Reps are Exempt Employees

In a recent decision, Schaefer-LaRose v. Eli Lilly & Co., the Seventh Circuit joined the Third Circuit in holding that pharmaceutical representatives are exempt from overtime payments for hours worked in excess of forty per week under the Fair Labor Standards Acts (FLSA). The FLSA, (which governs, among other things, the maximum amount of hours an employee may work), dictates that hourly employees must be paid at one-and-a-half times their regular rate for all hours worked in excess of forty hours per week. There are several exemptions to this overtime requirement; three of the most popular exemptions are for administrative, professional and executive employees.

The Circuits have been split as to whether the duties a pharmaceutical representative performs satisfy the duties necessary for an administrative employee to be exempt from overtime requirements. Under the two-prong duties test for an administrative employee, he/she must: (1) have a primary duty to perform office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers and (2) have a primary duty that includes the exercise of discretion and independent judgment with respect to significant matters. 29 C.F.R. § 541.200(a). Although the federal regulations explain that the phrase “discretion and independent judgment” is meant to include whether the employee has the authority to implement management policies, carry out major assignments, perform work affecting business operations to a substantial degree, bind the company on a significant matter, etc., the Seventh Circuit seems to have significantly lowered the bar for what is considered “discretion.”

In Schaefer, the Court argued that although the pharmaceutical representative’s principal duties involved implementing skills they learned on the job, the skills required using a great deal of independent judgment, making the job a “far more than applying well-established techniques, procedures or specific standards described in manuals.” Consequently, the Schaefer decision seems to be an indication that the Seventh Circuit is becoming more flexible in its definition of exempt employees.