May 9 (Reuters) - The U.S. Court of Appeals for the 7th Circuit on Tuesday found that pharmaceutical companies do not
owe their sales representatives overtime pay, a decision that
could help relieve the industry of billions of dollars in
A unanimous three-judge panel of the 7th Circuit ruled that
sales representatives at Eli Lilly & Co and Abbott Laboratories
Inc are administrative employees exempt from overtime
requirements under the Fair Labor Standards Act.
The act generally requires companies to pay workers overtime
for work over 40 hours a week, but includes numerous exemptions
for certain white-collar workers, including administrative
employees and "outside sales" personnel.
The decision could have a broad impact on employers by
affirming companies use of the administrative classification for
sales representatives. The more narrowly used "outside sales"
exemption is currently before the Supreme Court, which is
expected to decide by the end of June whether pharmaceutical
representatives fall under that label.
The 7th Circuit found that the sales representatives met the
requirements to be classified as administrative employees and
therefore do not qualify for overtime. Under the law,
administrative employees must perform work related to central
business operations and must exercise their own discretion.
The employees had argued that the administrative exemption
was designed for higher-level employees who exercise more
discretion than the representatives who simply toe the company
line in promoting drugs to doctors. But the 7th Circuit panel
"The representatives before us are the public face of their
employer to the most important decision-maker regarding use of
their companies' products, the prescribing physicians," Judge
Kenneth Ripple wrote for the panel.
The workers were not mouthpieces reciting a company script,
but administrative in nature, the panel found. The decision
affirmed one district court that had ruled for Eli Lilly, and
reversed another that had ruled against Abbott.
In contrast, the Supreme Court is considering whether sales
representatives for a unit of Britain's GlaxoSmithKline Plc were
"outside sales" personnel exempt from overtime pay. The
employees argue that for that exception to apply, they must
actually complete sales transactions and not simply tout drugs
The 9th Circuit ruled in favor of the Glaxo unit, finding
that the sales representatives were outside sales employees. But
the 2nd Circuit has reached the opposite conclusion in a case
against Novartis, ruling in 2010 that neither the outside-sales
nor administrative exemptions applied to the workers.
James O'Brien, a lawyer at Seeger Weiss who represented the
plaintiff employee in the Eli Lilly case, said he was
disappointed with the 7th Circuit's ruling and considering all
Abbott and Eli Lilly said they welcomed the decision.
Richard Alfred, an employment lawyer at Seyfarth Shaw, said
the 7th Circuit decision could become important if the Supreme
Court finds that sales representatives are not "outside sales"
employees under the statute. Then, the industry will turn to the
7th Circuit ruling to argue that the exception for
administrative employees applies.
The Department of Labor has weighed in on the issue,
submitting amicus briefs for the employees in numerous cases
across the country. The department claims that the
pharmaceutical representatives are neither "outside sales"
workers nor administrative employees and are therefore entitled
to overtime pay. The 7th Circuit declined to defer to the agency
in its ruling.
The cases before the 7th Circuit are Schaefer-LaRose v. Eli
Lilly & Company, No. 10-3855; Jirak v. Abbott Laboratories Inc,
Nos. 11-1980, 11-2131.
For Schaefer-LaRose: James O'Brien of Seeger Weiss.
For Eli Lilly: Ellen Boshkoff of Faegre Baker Daniels.
For plaintiff James Jirak: Eric Kingsley of Kingsley &
For Abbott: Daniel Reidy of Jones Day.
(Reporting By Terry Baynes)
Follow us on Twitter: @ReutersLegal | Like us on Facebook