Hunton Employment & Labor Perspectives

In a recent decision, a federal district court judge held that Abbott Laboratories, Inc.’s pharmaceutical sales representatives do not qualify for either the outside sales or administrative exemptions of the Fair Labor Standards Act (“FLSA”).  Under the FLSA, employers are required to pay overtime for hours worked over 40 in a week, unless an employee qualifies for an exemption under the Act. While the FLSA contains many such exemptions, the most commonly used exemptions are the executive, outside sales, and administrative exemptions.  Each exemption has specific requirements that must be met.

In Jirak v. Abbott Laboratories, Inc., No. 07-3626 (N.D. Ill. June 10, 2010), Abbott Laboratories claimed that its pharmaceutical sales representatives qualified for both the outside sales and the administrative exemptions under the FLSA.  The U.S. District Court for the Northern District of Illinois, however, disagreed. 

The sales representatives’ duties involved calling on physicians to educate them about Abbott Laboratories’ products and to gain a commitment that the physician would write patient prescriptions for these products in medically appropriate circumstances. The Court held that the Abbott’s Laboratories’ sales representatives did not qualify for the outside sales exemption because their activities did not result in a sale or order, such as a contract or enforceable commitment by the physician to write prescriptions, to satisfy the “making sales” requirement of the exemption. Instead, the judge found that the sales representatives’ activities were more akin to promotional activities that stimulated sales for another department of Abbott Laboratories.

The Court also held that Abbott Laboratories’ sales representatives did not qualify for the administrative exemption because they did not exercise sufficient discretion and independent judgment in the performance of their jobs.  Distinguishing other cases in which federal courts determined that pharmaceutical sales representatives qualified for the administrative exemption, based on such details as a sales representative’s own testimony regarding the autonomy of the position, the Court found that Abbott Laboratories’ sales representatives merely applied “well-established techniques and procedures” by calling on the doctors on their call lists with the expected frequency to deliver Abbott Laboratories’ designated sales message.

The sales representative job remains controversial and may qualify for either administrative or outside sales exemptions, and the determinations by the various courts have turned on fact specific findings in each case, the duties of the representative, the performance of those duties day-to-day and the testimony presented in each case. The Abbott Laboratories decision departs from holdings in the Third Circuit and other District Court decisions. Stay tuned for further developments on this topic because decisions are pending in both the Ninth and the Second Circuits on the exemption status of other pharmaceutical industry sales representatives.

The structure of an employee’s job is crucial to a determination of whether it qualifies for an exemption under the FLSA.  As this federal court decision adds to the various conflicting decisions across the country, prudent employers should review the job descriptions and the actual job duties of their sales representatives to ensure the highest possible chance that a court would find an exemption is applicable.