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In re Novartis Wage and Hour Litigation
This case was before the Second Circuit on Plaintiffs’ appeal of the lower Court’s Order granting Defendant summary judgment, which held that Plaintiffs, Pharmaceutical Representatives, were exempt from the overtime provisions of the FLSA under both the outside sales exemption and the administrative sales exemption. Reversing the Court below, the Second Circuit held that, based on their duties, the Plaintiffs were neither outside sales exempt nor administrative sales exempt.
Discussing the outside sales exemption first, the Court explained:
“We note that the distinction between obtaining commitments to buy and promoting sales by other persons has been respected in areas other than the pharmaceutical industry. See, e.g., Gregory v. First Title of America, Inc., 555 F.3d 1300, 1309 (11th Cir.2009) (employee who obtained commitments to buy her employer’s title insurance service and was credited with those sales, and all of whose efforts were directed towards the consummation of her own sales and not towards stimulating sales for the employer in general, was an outside sales employee within the meaning of the FLSA and the regulations); Clements v. Serco, Inc., 530 F.3d 1224, 1228 (10th Cir.2008) (civilian military recruiters who did not obtain commitments from recruits were not outside salesmen within the meaning of, e.g., 29 C.F.R. § 541.504); Wirtz v. Keystone Readers Service, Inc., 418 F.2d 249, 253, 260 (5th Cir.1969) (“student salesmen” were not outside sales employees where their promotional activities were incidental to sales made by others).
We think it clear that the above regulations, defining the term “sale” as involving a transfer of title, and defining and delimiting the term “outside salesman” in connection with an employee’s efforts to promote the employer’s products, do far more than merely parrot the language of the FLSA. The Secretary’s interpretations of her regulations are thus entitled to “controlling” deference unless those interpretations are “ ‘plainly erroneous or inconsistent with the regulation.’ “ Auer, 519 U.S. at 461 (quoting Robertson v. Methow Valley Citizens Council, 490 U.S. 332, 359 (1989) (other internal quotation marks omitted)).
We find no such inconsistency and see no such error. Although Novartis contends that the position taken by the Secretary as amicus on this appeal is contrary to the regulations, we disagree. The basic premise of the regulations explaining who may properly be considered an exempt “outside salesman”-a term for which the FLSA explicitly relies on the Secretary to promulgate defining and delimiting regulations-is that an employee is not an outside salesman unless he does “in some sense make the sales,” 2004 Final Rule at 22162. And although that phrase (on which Novartis relies heavily (see, e.g., Novartis brief on appeal at 12, 22, 25, 29)) does not appear in any of the regulations that explicate the term “outside salesman,” the regulations quoted above make it clear that a person who merely promotes a product that will be sold by another person does not, in any sense intended by the regulations, make the sale. The position taken by the Secretary on this appeal is that when an employee promotes to a physician a pharmaceutical that may thereafter be purchased by a patient from a pharmacy if the physician-who cannot lawfully give a binding commitment to do so-prescribes it, the employee does not in any sense make the sale. Thus, the interpretation of the regulations given by the Secretary in her position as amicus on this appeal is entirely consistent with the regulations.
Nor can we conclude that the regulations constitute an erroneous interpretation of the FLSA definition of “sale” to “include [ ] any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition,” 29 U.S.C. § 203(k). Although the phrase “other disposition” is a catch-all that could have an expansive connotation, we see no error in the regulations’ requirement that any such “other disposition” be “in some sense a sale.” Such an ejusdem generis-type interpretation is consistent with the interpretive canon that exemptions to remedial statutes such as the FLSA are to be read narrowly, see Arnold, 361 U.S. at 392; see generally A.H. Phillips, Inc. v. Walling, 324 U.S. 490, 493 (1945), and is neither erroneous nor unreasonable, see, e.g., Chevron U.S.A. Inc. v. Natural Resources Defense Council, Inc., 467 U.S. 837, 842-43 (1984). We accordingly owe the Secretary’s interpretation deference, and we turn to the question of its applicability to the present cases.
There is no genuine dispute over the sales path generally traversed by Novartis pharmaceuticals. As described in Part I.A. above, Novartis sells its drugs to wholesalers; the wholesalers then sell them to pharmacies; and the pharmacies ultimately sell the drugs to patients who have prescriptions for them. The Reps promote the drugs to the physicians; the Reps do not speak to the wholesalers or to the pharmacies or to the patients.
Nor is there any dispute as to what occurs during the Reps’ “sales” calls on physicians. The meetings are brief-generally less than five minutes-and the physicians neither buy pharmaceuticals from the Reps nor commit to buying anything from the Reps or from Novartis. The Reps may give physicians free samples, but the Reps cannot transfer ownership of any quantity of the drug in exchange for anything of value. The physician is of course an essential step in the path that leads to the ultimate sale of a Novartis product to an end user; a patient cannot purchase the product from a pharmacy without a prescription, and it is the physician who must be persuaded that a particular Novartis drug may appropriately be prescribed for a particular patient. But it is reasonable to view what occurs between the physicians and the Reps as less than a “sale.”
Novartis suggests that “sale” should be read broadly in light of the statement in the Preamble that “ ‘[e]mployees have a primary duty of making sales if they “obtain a commitment to buy ” from the customer and are credited with the sale.’ “ (Novartis brief on appeal at 23 (quoting 2004 Final Rule at 22162) (emphases in brief).) It argues that the Reps “make sales in some sense” because “they are responsible for eliciting commitments from the physicians on whom they call to write prescriptions for NPC drugs and that these prescriptions are, in essence, orders for NPC drugs to be used by the patients in purchasing the drugs from pharmacies.” (Novartis brief on appeal at 25-26 (emphasis in original) (internal quotation marks omitted).) Novartis’s emphatic reliance on the word “commitments,” however, does not lead to a conclusion that the Reps make sales, for it ignores the nature of the “commitment” expressly envisioned by the Secretary in enacting the regulations: “a commitment to buy,” 2004 Final Rule at 22162, 22163 (emphasis added). The type of “commitment” the Reps seek and sometimes receive from physicians is not a commitment “to buy” and is not even a binding commitment to prescribe. As the district court noted, “physicians have an ethical obligation to prescribe only drugs suitable for their patients’ medical needs, meaning that they cannot make a binding commitment to a Rep to prescribe ” a particular Novartis product. Novartis I, 593 F.Supp.2d at 650 (emphasis added). Thus, although physicians may say that they will prescribe a given Novartis drug for patients with appropriate diagnoses, such an assurance is not a binding commitment, and physicians remain entirely free to prescribe a competing product made by a company other than Novartis.
In sum, where the employee promotes a pharmaceutical product to a physician but can transfer to the physician nothing more than free samples and cannot lawfully transfer ownership of any quantity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase, and cannot lawfully even obtain from the physician a binding commitment to prescribe it, we conclude that it is not plainly erroneous to conclude that the employee has not in any sense, within the meaning of the statute or the regulations, made a sale.
Novartis points out that a number of district courts have held that pharmaceutical sales representatives are exempt from the FLSA overtime pay requirements as outside salesmen (and/or administrative employees). Those cases are, of course, not binding on us, and their reasoning does not persuade us that the Secretary’s interpretations of the regulations should be disregarded. To the extent that the pharmaceuticals industry wishes to have the concept of “sales” expanded to include the promotional activities at issue here, it should direct its efforts to Congress, not the courts. Given the existing statute and regulations, we conclude that the district court should have ruled that the Reps are not outside salesmen within the meaning of the FLSA and the regulations.”
Next the Court rejected the lower Court’s holding that the Plaintiffs were administratively exempt:
“On appeal, the Reps contend that they do “low-level, discretionless marketing work, strictly controlled by Novartis,” and that their duties and authority do not satisfy the requirements for applicability of the administrative employee exemption. (Plaintiffs’ brief on appeal at 40.) Novartis, in contending that the Reps exercise discretion and independent judgment, argues that the Reps, for example, “must determine how best to develop a rapport with a physician and develop strategies to engage physicians in an interactive dialogue to draw out their patient concerns, treatment styles and predilections”; must “be able to react to expressed physician concerns by emphasizing particular clinical findings regarding the efficacy and safety of NPC’s drugs for specific patient types”; “must determine when and how to deliver the [Novartis-determined core] message, taking into consideration,” e.g., “the prior call history with each physician, the physician’s time constraints, expressed concerns, prescription-writing tendencies and patient population”; and must “determine how best to close each call by evaluating whether sufficient groundwork has been laid to seek the physician’s commitment on that call to write prescriptions.” (Novartis brief on appeal at 50-51.)
The Secretary points out that the regulations make clear that the requirement for authority to “exercise … discretion and independent judgment” means more than simply the need to use skill in applying well-established techniques or procedures prescribed by the employer, see 29 C.F.R. § 541.202(e). The Secretary takes the position that for the administrative exemption to apply to the Reps, the regulations require a showing of a greater degree of discretion, and more authority to use independent judgment in matters of significance, than Novartis allows the Reps. Again we find it appropriate to defer to the Secretary’s interpretation.
Comparing the record as to the Reps’ primary duties against the illustrative factors set out in § 541.202(b), for example, we see no evidence in the record that the Reps have any authority to formulate, affect, interpret, or implement Novartis’s management policies or its operating practices, or that they are involved in planning Novartis’s long-term or short-term business objectives, or that they carry out major assignments in conducting the operations of Novartis’s business, or that they have any authority to commit Novartis in matters that have significant financial impact. Although Novartis argues that the Reps do commit Novartis financially when they enter into contracts with hotels, restaurants, and other venues for promotional events, “which may cost NPC thousands of dollars” (Novartis brief on appeal at 3-4), the record reveals that the Reps have been given budgets for such events by the Novartis managers and that the Reps have no discretion to exceed those budgets. Nor have we been pointed to any evidence that the Reps have authority to negotiate and bind Novartis on any significant matters, or have authority to waive or deviate from Novartis’s established policies and procedures without its prior approval. What Novartis characterizes as the Reps’ exercise of discretion and independent judgment-ability to answer questions about the product, ability to develop a rapport with a physician who has a certain social style, ability to remember past conversations with a given physician, ability to recognize when a message has been persuasive-are skills gained and/or honed in their Novartis training sessions. As described in Part I.A. above, these skills are exercised within severe limits imposed by Novartis. Thus, it is undisputed that the Reps, inter alia,
• have no role in planning Novartis’s marketing strategy;
• have no role in formulating the “core messages” they deliver to physicians;
• are required to visit a given physician a certain number of times per trimester as established by Novartis;
• are required to promote a given drug a certain number of times per trimester as established by Novartis;
• are required to hold at least the number of promotional events ordered by Novartis;
• are not allowed to deviate from the promotional “core messages”;
• and are forbidden to answer any question for which they have not been scripted.
Novartis argues that the Reps exercise a great deal of discretion because they are free to decide in what order to visit physicians’ offices, free to decide how best to gain access to those offices, free to decide how to allocate their Novartis budgets for promotional events, and free to determine how to allocate their samples. (See Novartis brief on appeal at 51.) In light of the above controls to which Novartis subjects the Reps, we agree with the Secretary that the four freedoms advanced by Novartis do not show that the Reps are sufficiently allowed to exercise either discretion or independent judgment in the performance of their primary duties. Accordingly, we conclude that the district court should have ruled that the Reps are not bona fide administrative employees within the meaning of the FLSA and the regulations.”
To read the entire decision, click here.
EDITOR’S NOTE: On the same day it handed down this decision, the Second Circuit also affirmed, by summary order, the decision from a lower court that held pharmaceutical representatives employed by Schering Corp. were not outside sales exempt under the FLSA. To read the entire summary order in Kuzinski v. Schering Corp., click here.
Jirak v. Abbott Laboratories, Inc.
This case was before the Court on the parties cross-Motions for Summary Judgment on the hot-button issue of whether Plaintiffs, pharmaceutical representatives, were exempt–under either the outside sales or administrative exemption–or non-exempt and entitled to overtime. Joining the minority of courts to have decided the issue to date, the Court granted Plaintiffs’ Motion for Summary Judgment and denied Defendant’s Motion.
The Court cited the following facts as relevant to its inquiry:
“Defendant is a global, broad-based health care company headquartered in Illinois. (R. 144, Pls.’ Facts ¶ 1.) Plaintiffs are current and former employees of Defendant that worked as Pharmaceutical Representatives (“Representatives”). (Id. ¶ 2.) Representatives had the core duties of “generating market share and market share growth for assigned professional pharmaceutical products” and “mak[ing] selling presentations to physicians and other health care professionals.” (R. 149, Def.’s Facts ¶ 8.) Representatives, however, did not promote Defendant’s products directly to patients or end-users. (R. 144, Pls.’ Facts ¶ 53.)
Representatives received initial training from Defendant on science and selling skills. (R. 149, Def.’s Facts ¶ 10.) This included training on product and competitor product information as well as selling techniques and techniques to determine the physician’s needs. (Id. ¶¶ 11, 13-14.) After the initial period of training, Representatives received training to continue to develop these skills and were also encouraged to participate in sales training outside of the company. (Id. ¶¶ 16, 19.)
Representatives were evaluated on their ability to utilize their training in the field. (Id. ¶ 10.) During “calls” or visits to health care providers, Defendant expected Representatives to adhere to company policies and federal and state laws that govern the pharmaceutical industry. (R. 144, Pls.’ Facts ¶ 11.) Their evaluations were based on job responsibilities that included “selling to customers” and “coordinat[ing] sales efforts.” (R. 149, Def.’s Facts ¶ 20.) Defendant provided each Representative with a “call list” specifying the physicians in their assigned territory that they were to present information about Defendant’s products. (R. 144, Pls.’ Facts ¶¶ 8, 10.) Defendant ranked the physicians on the “call list” and Representatives were expected to call on the higher-ranked physicians with more frequency than others . (Id. ¶¶ 39-40.) Each Representative was also supplied with a laptop computer to enter “call notes” describing what they did on a particular sales call. (Id. ¶ 11.) District Managers (“DMs”) had access to these “call notes” to ensure that Representatives were following appropriate procedure. (Id.) DMs could also conduct “ride alongs” to monitor Representatives during their calls. (Id.)
Representatives were expected to deliver “core messages” created by Defendant’s marketing department about the products to health care providers. (Id. ¶¶ 4-5, 41.) Although Plaintiffs contend that Representatives “could not deviate” from these messages, the record illustrates that Representatives were not provided “transcripts of communications to be repeated verbatim.” (R. 144, Pls.’ Facts ¶ 4; R. 162, Def.’s Resp. Facts ¶ 4.) Rather, they were free to “weave” these “core messages” into “their overall product conversations with doctors.” (Id.)
To assist with “core message” delivery, Defendant’s marketing department provided “visual aids” and material that Representatives could use or distribute during their calls. (R. 144, Pls.’ Facts ¶¶ 6, 9.) The messaging and material was created under the supervision of Defendant’s medical, regulatory, and legal departments to ensure compliance with industry and company policy. (R. 162, Def.’s Resp. Facts ¶ 6.) Although Representatives were “prohibited” from using aids that had not been approved by Defendant, they did have discretion to decide which, if any, materials to use during a particular call. (Id. ¶ 9.) Representatives were evaluated on their ability to “consistently giv[e] a logical, reasonable call-to-action/close on every sales call to drive product adoption and utilization.” (R. 149, Def.’s Facts ¶ 26.) “Closing,” however, did not create a contract or an enforceable commitment by the doctor to write a prescription for Defendant’s products. (R. 144, Pls.’ Facts ¶ 19.)
Even if the targeted doctor wrote a prescription for the product and it was filled by a pharmacy, Defendant did not recognize income. (Id. ¶ 15.) Rather, Defendant recognized revenue when their “trade group” provided pharmaceutical products to wholesale and retail customers. (Id.) Eighty to ninety percent of the revenue recognized by Defendant came from sales to wholesalers. (Id.) The remaining ten to twenty percent, was from sales to managed care entities, VA hospitals, long-term care facilities, independent hospital, independent pharmacies, and other small entities. (Id.; R. 162, Def.’s Resp. Facts ¶ 15.) However, in addition to their base wages, Representatives were paid “incentive compensation” that was calculated, in part, based on prescriptions written in the Representatives’ assigned territory. (R. 149, Def.’s Facts ¶¶ 30-35.)”
Holding that neither the outside sales exemption, nor the administrative exemption was applicable, the Court reasoned:
“I. Outside Salesmen Exemption
The DOL regulations define an “outside salesman” as an employee: (1) Whose primary duty is: (i) making sales within the meaning of section 3(k) of the [FLSA], or (ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and (2) Who is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty. 29 C.F.R. § 541.500(a). “Primary duty” means “the principal, main, major or most important duty that the employee performs.” Id. at § 541.700(a). “Sale” or “sell” under the FLSA “includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” Id. at § 541.501(b); 29 U.S.C. § 203(k). The regulations indicate that “promotion work” is “one type of activity often performed by persons who make sales, which may or may not be exempt outside sales work, depending upon the circumstances under which it is performed.” 29 C.F.R. § 541.503(a). “Promotion activities directed toward consummation of the employee’s own sales are exempt.” Id. § 541.503(b). However, “[p]romotional activities designed to stimulate sales that will be made by someone else are not exempt outside sales work.” Id.
Plaintiffs argue that the outside sales exemption does not apply in this case because Representatives “do[ ] not sell anything” and health care providers “do [ ] not purchase anything.” (R. 145, Pls .’ Mem. at 2.) In support of their argument, Plaintiffs cite an amicus curiae brief submitted by the DOL in an appeal pending before the Second Circuit Court of Appeals, In Re Novartis Wage and Hour Litigation. (Id. at 3.) In its brief, the DOL argues that the district court in that case committed legal error when it concluded that the pharmaceutical sales representatives employed by Novartis Pharmaceutical Corporation (“NPC”) were exempt from the overtime requirements of the FLSA under the outsides sales and administrative exemptions. (R. 146-21, Ex. U-DOL Brief.)
In the context of the outside sales exemption, the DOL emphasizes the fact that pharmaceutical sales representatives do not sell or take orders for NPC’s drugs; rather, “they provide information to target physicians about NPC’s drugs with the goal of persuading the physicians to prescribe those drugs to their patients.” (Id. at 5.) The DOL contends that “[b]ecause the reps do not sell any drugs or obtain any orders for drugs, and can at most obtain a non-binding commitment to prescribe NPC’s drugs to their patients when appropriate,” they “do not meet the regulation’s plain and unmistakable requirement that their primary duty must be ‘making sales.’ “ (Id. at 10.) The DOL acknowledges that the sales reps duties “bear some of the indicia of sales.” (Id. at 5.) However, the DOL contends that insofar as the reps’ work increases NPC’s sales, “it is non-exempt promotional work ‘designed to stimulate sales that will be made by someone else’ “ and that “a ‘sale’ for the purpose of the outside sales exemption requires a consummated transaction directly involving the employee for whom the exemption is sought.” (Id. at 10 (citing 29 C.F.R. § 541.503(b)), 11-12.)
Plaintiffs argue that pursuant to Auer v. Robbins, 519 U.S. 452 (1997), the DOL’s amicus brief is “entitled to substantial deference by this Court.” (R. 145, Pls.’ Mem. at 4.) Auer involved a disputed interpretation of whether a class of law enforcement officers met the “salary-basis” test for overtime pay exemption under the FLSA. 519 U.S. at 454-55. The Secretary of Labor filed an amicus brief explaining why, in his view, the regulations gave exempt status to the officers. Id. at 461. The Supreme Court deferred to the Secretary’s interpretation explaining that the test was “a creature of the Secretary’s own regulations” and therefore his interpretation was “controlling unless ‘plainly erroneous or inconsistent with the regulations.’ “ Id. at 461 (citations omitted); see also Whetsel v. Network Prop. Servs., Inc., 246 F.3d 897, 901 (7th Cir.2001) (quoting Pauley v. BethEnergy Mines, Inc. 501 U.S. 680, 702 (1991)) (“[i]f the regulation is ambiguous, then we defer to any reasonable construction by the Secretary”).
Defendant argues that the Court should grant “no deference” to the DOL’s amicus brief. (R. 161, Def.’s Opp’n Mem. at 8.) Defendant claims that the DOL’s interpretation of what it means to “sell” under the outside sales exemption is not based on “language of the DOL’s own creation;” but rather, “statutory language created by Congress.” (Id. at 9.) Therefore, Defendant argues that pursuant to Gonzales v. Oregon, 546 U.S. 243 (2006), the DOL’s interpretation is not entitled to controlling deference. (Id.) In Gonzales, the Supreme Court held that it would not accord deference to an Attorney General rule interpreting a “parroting regulation” that “just repeats two statutory phrases and attempts to summarize the others.” 546 U.S. at 257. The Court reasoned that: “[a]n agency does not acquire special authority to interpret its own words when, instead of using its expertise and experience to formulate a regulation, it has elected merely to paraphrase the statutory language.” Id.
The Court, however, is not persuaded by Defendant’s argument because the regulations at issue in this case do not merely “parrot” the FLSA. The Court acknowledges that both the regulations and the FLSA define “sale” or “sell” to include “any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” See 29 C.F.R. § 541.501(b); 29 U.S.C. § 203(k). The regulations, however, go further and provide guidance directly applicable to the issue in this case: when the outside sales exemption applies. The regulations explain that “sales” under the exemption include the transfer of both tangible and intangible property, and that “outside sales work” includes both the sale of commodities and obtaining orders or contracts for services or the use of facilities. See 29 C.F.R. § 541.501. Further, the regulations provide guidance as to when “promotion work” falls under the outside sales exemption. Id. at § 541.500(b). As such, the regulations do more than merely repeat or summarize the FLSA. See Harrell v. United States Postal Serv., 445 F.3d 913, 925-26 (7th Cir.2006) (determining that although the DOL’s interpretation “follows closely the language of the statute,” it is entitled to deference because “the regulation goes beyond the mere recitation of the statutory language and speaks to the issue presented in this case”). Accordingly, the Gonzales exception to awarding deference to the DOL’s interpretation does not apply here. Moreover, even if the Court did find that the DOL’s brief was not entitled to deference, its interpretation is still “entitled to respect” to the extent that “it has the ‘power to persuade.’ “ Gonzales, 546 U.S. at 256 (quoting Skidmore v. Swift & Co., 323 U.S. 134, 140 (1944)).
After careful review, this Court finds that the DOL’s interpretation is both persuasive and consistent with our analysis of the regulations. The regulations dictate that if an employee does not make any sales and does not obtain any orders or contracts, then the outside sales exemption does not apply. See 29 C.F.R. § 541.500(a). Further, the regulations state that “promotional work that is incidental to sales made, or to be made, by someone else is not exempt outside sales work” and that “promotional activities designed to stimulate sales that will be made by someone else are not exempt outside sales work.” Id. at § 541.503(a)-(b). The latter regulation describes promotional activities generally, and does not distinguish between activities that are “incidental” versus “essential” to sales. See id. at § 541.503(b). In this case, the Court acknowledges that Representatives’ promotional activities were not “incidental” to Defendant’s sales; rather, such activity was an essential component of Defendant’s business strategy. (See R. 149, Def.’s Facts ¶ 8.) However, the activities did not generate Representatives’ “sales,” but instead stimulated “sales” Defendant’s “trade group.” (See R. 144, Pls.’ Facts ¶¶ 15, 19.) Therefore, Representatives’ promotional activities are not exempt under the regulation.
Further, the Court finds that this conclusion is consistent with the DOL’s prior position that a “sale” for the purpose of the outside exemption requires a consummated transition involving the employee for whom the exemption is sought. For example, the DOL found that the outside sales exemption did not apply to “enrollment advisors” or college recruiters whose duties included “selling” the school and “inducing” student applicants, which resulted in the advisors personally obtaining a signed enrollment application and a nonrefundable $50.00 application fee. DOL Opinion Letter, 1998 DOLWH LEXIS 17, at *3, 7 (Feb. 19, 1998). The DOL explained that the activities of the position were more “analogous to sales promotion work” because “like a promotion person who solicits customers for a business,” the college recruiter identifies customers and induces their application but does not “make a contractual offer of its educational services to the applicant.” Id. at *7. See also DOL Opinion Letter, FLSA2006-16, 2006 WL 1698305, at *2 (May 22, 2006) (finding that “ ‘selling the concept’ of donating to a charity does not constitute ‘sales’ for purposes of the outside sales exemption” because the solicitors do not obtain orders or contracts and the “exchange of a token gift for the promise of a charitable donation” is not a “sale”).
In arguing that Representatives “made sales” within the meaning of the FLSA, Defendant relies on the Novartis district court decision as well as the opinion of the only court in this Circuit to address the issue, Schaefer-LaRose v. Eli Lily & Co., 663 F.Supp.2d 674 (S.D.Ind.2009). (R. 148, Def.’s Mem. at 6-12.) The district court in Novartis found that “the realities of the pharmaceutical industry” was “incompatible” with engaging in a “narrow reading” of the outside sales exemption and that a determination that sales representatives are exempt “produces results that reflect the exemptions terms and spirit.” 593 F.Supp.2d at 653. Similarly, the Schaefer court noted that the pharmaceutical industry was “unique” because “the only individuals who can legally authorize a purchase of the medication and who thus drive demand for those drugs” are physicians. 663 F.Supp.2d at 684. As such, the Schaefer court found that although the pharmaceutical sales representatives in that case did not provide “direct sales of the medications,” they represented a “special category with regard to ‘making sales’ “ and thus fell within the FLSA’s outside sales exemption. Id. at 684-85.
This Court, however, declines to follow these decisions and carve out this “special category.” Instead, pursuant to the Seventh Circuit’s mandate that FLSA exemptions must be “narrowly construed against the employer seeking the exemption,” Schmidt, 599 F.3d at 631, the Court finds that Representatives do not “plainly and unmistakably” come within the outside sales exemption. See Jackson, 56 Fed. Appx. at 270. It is clear that Representatives bear some indicia of salesmen (as evidenced by hiring considerations, training, their evaluation criteria and incentive pay). However, pursuant to both the plain text of the outside sales exemption and the DOL’s interpretation of it, Representatives fail to satisfy the primary duty test of the exemption because they do not “make sales” under the statute. (See R. 146-21, Ex. U-DOL Brief at 11 (“a ‘sale’ for the purpose of the outside sales exemption requires a consummated transaction directly involving the employee for whom the exemption is sought”).) See also Kuzinski v. Schering Corp., 604 F.Supp.2d 385, 402-03 (D.Conn.2009) (“Because [pharmaceutical sales reps] undisputedly do not ‘sell’ or make any ‘sales’ as those terms are defined in the FLSA and its implementing regulations, they fall outside the FLSA’s outside sales exemption.”); Ruggeri v. Boehringer Ingelheim Pharms., Inc., 585 F.Supp.2d 254, 272 (D.Conn.2008) (“Because Defendant has not shown that [pharmaceutical sales reps] make sales or obtain contracts or orders, the outside sales exemption is inapplicable.”).
Thus, Representatives are not exempt from the overtime requirements of the FLSA under the outside sales exemption. Accordingly, summary judgment is granted to Plaintiffs on this issue.
II. Administrative Exemption
Next, the parties present cross-motions on the issue of whether Representatives are exempt from the overtime requirements of the FLSA under the administrative exemption. (R. 145, Pls.’ Mem at 11-19; R. 148, Def.’s Mem. at 12-20.) The DOL Regulations define an “administrative employee” as someone: (1) Compensated on a salary or fee basis at a rate of not less than $455 per week … exclusive of board, lodging or other facilities; (2) 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 (3) Whose primary duty includes the exercise of discretion and independent judgment with respect to matters of significance. 29 C.F.R. § 541.200. There is no dispute that Representatives in this case meet the first prong of the administrative employee exemption. (See R. 145, Pls.’ Mem at 11-19; R. 148, Def.’s Mem. at 12-20.) The parties, however, disagree as to whether Representatives performed work “directly related” to Defendant’s management or business operations and whether Representatives exercised “discretion and judgment with respect to matters of significance.” (Id.)
Turning first to prong three of the exemption, the regulations explain that, “the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered.” 29 C.F.R. § 541.202(a). “The term ‘matters of significance’ refers to the level of importance or consequence of the work performed.” Id. The exercise of discretion and independent judgment requires “more than the use of skill in applying well-established techniques, procedures or specific standards described in manuals or other sources.” Id. at § 541.202(e). The employee must have “authority to make an independent choice, free from immediate direction or supervision.” Id. at § 541.202(c). Further, an employee does not meet the requirement “merely because the employer will experience financial losses if the employee fails to perform the job properly.” Id. at § 541.202(f).
“The phrase ‘discretion and independent judgment’ must be applied in the light of all the facts involved in the particular employment situation in which the questions arises.” Id. at § 541.202(b). The regulations, however, provide factors to consider when determining whether an employee’s duties meet this threshold. Id. These factors include, but are not limited to, whether the employee “carries out major assignments in conducting the operations of the business”; “has authority to commit the employer in matters that have significant financial impact”; “has authority to waive or deviate from established policies and procedures without prior approval”; and “has authority to negotiate and bind the company on significant matters.” Id.
Defendant argues that Representatives “regularly exercised discretion and independent judgment with matters of significance.” (R. 148, Def.’s Mem. at 13-19.) Specifically, Defendant asserts that Representatives built relationships, created “pre-call plans” and customized their calls to develop a specific strategy to increase their effectiveness with targeted physicians, which resulted in an increase in Defendant’s market share. (Id.) Defendant cites the recently decided case Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir.2010), in support of their argument. (R. 169, Def.’s Reply at 6-10; R. 173, Def.’s Mot. to File Supp. Authority.) The facts before the Third Circuit (the only circuit to address the administrative exemption status of pharmaceutical sales representatives), however, do not persuade this Court to reach the same conclusion in this case. The Third Circuit noted that the plaintiff, Smith, “executed nearly all of her duties without direct oversight” and during her deposition “described herself as the manager of her own business who could run her territory as she saw fit.” Smith, 593 F.3d at 285. Although Smith argued that she lacked discretion with respect to matters of significance and that her previous statements were “overinflated” and “mere puffery,” the Third Circuit was “unwilling to ignore Smith’s testimony” and accepted her statements “as an accurate description of her position .” Id.
The facts before this Court are distinguishable from Smith and indicate that Representatives did not exercise discretion and independent judgment, but instead used their sales skill to apply Defendant’s well established techniques and procedures. For example, the record illustrates that Representatives did not independently solicit doctors, but worked from a “call list” provided by Defendant that specified the physicians in their assigned territory that they were to target. (R. 144, Pls.’ Facts ¶¶ 8, 10.) The “call list” also dictated the frequency that Defendant expected Representatives to visit the targeted physicians. (Id. ¶ 39.) Further, although Representatives had flexibility to determine how to best craft the appropriate message for a particular doctor (R. 162, Def.’s Resp. Facts ¶ 4), they did not engage in sales “calls” “independent [ly],” and were not “free from immediate direction.” See 29 C.F.R. § 541.200. Representatives were expected to adhere to company policies and to deliver Defendant’s “core messages” about the products during “calls.” (R. 144, Pls.’ Facts ¶¶ 4-5, 11, 41.) Representatives could use or distribute marketing material provided by Defendant but were “prohibited” from creating their own material. (Id. ¶¶ 6, 9; R. 162, Def.’s Resp. Facts ¶ 9.) Further, because Representatives could not prepare contracts or create an enforceable commitment by a doctor to write a particular prescription (R. 144, Pls.’ Facts ¶ 19), they did not have the authority to negotiate and bind Defendant in significant matters or matters that had a significant financial impact. See 29 C.F.R. § 541.202(b).
Moreover, pursuant to the DOL’s interpretation, duties similar to those of the Representatives in this case, “do[ ] not suffice to qualify for the administrative exemption.” (R. 146-21, Ex. U-DOL Brief at 21.) In the Novartis brief, the DOL asserts that NPC’s pharmaceutical sales representatives do not perform duties that require the exercise of discretion and independent judgment as contemplated by the regulations. (Id. at 21.) Rather, the DOL states:
The facts are clear that, within the stringent restrictions on Reps’ work activities, the Reps’ discretion is limited to such matters as what time of day to visit a particular doctor, the manner in which to approach the doctor based on the doctor’s personality, and how best to deliver (i.e., to ‘fit in’) the NPC’s ‘core message’ for a particular drug given the time constraints of a visit. Id. at 26. Accordingly, the DOL argues that the district court in Novartis erred in concluding that NPC’s pharmaceutical sales representatives are administrative employees because they do not exercise discretion and independent judgment with respect to matters of significance. (Id. at 17.)
The DOL interpretation is consistent with previous agency decisions addressing the discretion and independent judgment prong of the exemption. See, e.g., DOL Opinion Letter, FLSA2006-27, 2006 DOLWH LEXIS 37, at *7 (July 24, 2006) (citation omitted) (stating that discretion and independent judgment requires more than “mak[ing] limited decisions, within clearly ‘prescribed parameters’ ”); DOL Opinion Letter, 2000 DOLWH LEXIS 23, at *5 (July 17, 2000) (“An employee who merely applies his knowledge in following prescribed procedures or determining which procedure to follow … is not exercising discretion and independent judgment within the meaning of section 541.2, even if there is some leeway in reaching a conclusion.”).
Accordingly, this Court finds that in light of the facts of this case, Representatives do not exercise discretion and independent judgment and thus do not meet the administrative exemption. Therefore, summary judgment is granted to Plaintiffs on this issue.
Administrator’s Interpretation No. 2010-1
The Wage and Hour Division, under the current Administration, has issued its first Administrative Interpretation Letter. The introductory text of the Letter is below:
“Based on the Wage and Hour Division’s significant enforcement experience in the application of the administrative exemption, a careful analysis of the applicable statutory and regulatory provisions and a thorough review of the case law that has continued to develop on the exemption, the Administrator is issuing this interpretation to provide needed guidance on this important and frequently litigated area of the law. Based on the following analysis it is the Administrator’s interpretation that employees who perform the typical job duties of a mortgage loan officer, as described below, do not qualify as bona fide administrative employees exempt under section 13(a)(1) of the Fair Labor Standards Act, 29 U.S.C. § 213(a)(1).
Typical Job Duties of Mortgage Loan Officers
The financial services industry assigns a variety of job titles to employees who perform the typical job duties of a mortgage loan officer. Those job titles include mortgage loan representative, mortgage loan consultant, and mortgage loan originator. For purposes of this interpretation the job title of mortgage loan officer will be used. However, as the regulations make clear, a job title does not determine whether an employee is exempt. The employee’s actual job duties and compensation determine whether the employee is exempt or nonexempt. 29 C.F.R. § 541.2.
Facts found during Wage and Hour Division investigations and the facts set out in the case law establish that the following are typical mortgage loan officer job duties: Mortgage loan officers receive internal leads and contact potential customers or receive contacts from customers generated by direct mail or other marketing activity. Mortgage loan officers collect required financial information from customers they contact or who contact them, including information about income, employment history, assets, investments, home ownership, debts, credit history, prior bankruptcies, judgments, and liens. They also run credit reports. Mortgage loan officers enter the collected financial information into a computer program that identifies which loan products may be offered to customers based on the financial information provided. They then assess the loan products identified and discuss with the customers the terms and conditions of particular loans, trying to match the customers’ needs with one of the company’s loan products. Mortgage loan officers also compile customer documents for forwarding to an underwriter or loan processor, and may finalize documents for closings. See, e.g., Yanni v. Red Brick Mortgage, 2008 WL 4619772, at *1 (S.D. Ohio 2008); Pontius v. Delta Financial Corp., 2007 WL 1496692, at *2 (W.D. Pa. 2007); Geer v. Challenge Financial Investors Corp., 2007 WL 2010957 (D. Kan. 2007), at *2; Chao v. First National Lending Corp., 516 F. Supp. 2d 895, 904 (N.D. Ohio 2006), aff’d, 249 Fed.App. 441 (6th Cir. 2007); Epps v. Oak Street Mortgage LLC, 2006 WL 1460273, at *4 (M.D. Fla. 2006); Rogers v. Savings First Mortgage, LLC, 362 F. Supp. 2d 624, 627 (D. Md. 2005); Casas v. Conseco Finance Corp., 2002 WL 507059, at *1 (D. Minn. 2002).”
To read the entire Letter click here.
3rd. Cir.: “Senior Professional Sales Representative” For Pharmaceutical Company Exempt From Overtime Provisions Of FLSA Under Administrative Exemption
Smith v. Johnson and Johnson
The Court below determined that Plaintiff was exempt under the Administrative Exemption, based on her duties and salary while employed as a “Senior Professional Sales Representative.” On appeal, the Third Circuit affirmed.
Discussing the relevant facts, the Court stated:
“From April 2006 to October 2006, McNeill Pediatrics, a J & J wholly-owned subsidiary, employed Smith in the position of Senior Professional Sales Representative. In essence, Smith’s position required her to travel to various doctors’ offices and hospitals where she extolled the benefit of J & J’s pharmaceutical drug Concerta to the prescribing doctors. J & J hoped that the doctors, having learned about the benefits of Concerta, would choose to prescribe this drug for their patients. Smith, however, did not sell Concerta (a controlled substance) directly to the doctors, as such sales are prohibited by law.
J & J gave Smith a list of target doctors that it created and told her to complete an average of ten visits per day, visiting every doctor on her target list at least once each quarter. To schedule visits with reluctant doctors, Smith had to be inventive and cultivate relationships with the doctor’s staff, an endeavor in which she found that coffee and donuts were useful tools. J & J left the itinerary and order of Smith’s visits to the target doctors to her discretion. The J & J target list identified “high-priority” doctors that issued a large number of prescriptions for Concerta or a competing product, and Smith could choose to visit high-priority doctors more than once each quarter. J & J gave her a budget for these visits and she could use the money in the budget to take the doctors to lunch or to sponsor seminars.
At the meetings, Smith worked off of a prepared “message” that J & J provided her, although she had some discretion when deciding how to approach the conversation. J & J gave her pre-approved visual aids and did not permit her to use other aids. J & J trained its representatives to gauge a doctor’s interest and knowledge about the product, eventually building to a “commitment” to prescribe the drug.
In Smith’s deposition she made it clear that she appreciated the freedom and responsibility that her position provided. Though a supervisor accompanied Smith during the doctor visits on a few days each quarter, by her own calculation Smith was unsupervised 95% of the time. As Smith explained during her deposition, “[i]t was really up to me to run the territory the way I wanted to. And it was not a micromanaged type of job. I had pretty much the ability to work it the way I wanted to work it.” App. at 54. According to Smith’s job description, she was required to plan and prioritize her responsibilities in a manner that maximized business results. J & J witnesses testified (and J & J documents confirmed) that Smith was the “expert” on her own territory and was supposed to develop a strategic plan to achieve higher sales.
Before her visits, Smith completed pre-visit reports to help her select the correct strategy for that day’s visits. At the end of her day, Smith completed post-visit reports summarizing the events of the visits. Smith would refer back to this information before her next visit to the same doctors. After adding up the time she spent writing pre-visit reports, driving, conducting the visits, writing post-visit reports, and completing other tasks, Smith worked more than eight hours per day.
Smith earned a base salary of $66,000 but was not paid overtime, though J & J, at its discretion, could award her a bonus. J & J considered the number of Concerta prescriptions issued in Smith’s territory in determining her bonus. The collection of this data and its direct relationship to Smith’s efforts was, however, subject to error as purchasers might fill their prescriptions in another territory or with a pharmacy that would not release the pertinent information to J & J.”
Applying the Administrative Exemption to the facts of this case, the Court held, that the Administrative Exemption was applicable to Smith. The Court reasoned, “[w]hile testifying at her deposition Smith elaborated on the independent and managerial qualities that her position required. Her non-manual position required her to form a strategic plan designed to maximize sales in her territory. We think that this requirement satisfied the “directly related to the management or general business operations of the employer” provision of the administrative employee exemption because it involved a high level of planning and foresight, and the strategic plan that Smith developed guided the execution of her remaining duties. See29 C.F.R. § 541.203(e) (“Human resources managers who formulate, interpret or implement employment policies and management consultants who study the operations of a business and propose changes in organization generally meet the duties requirements for the administrative exemption.”); Reich v. John Alden Life Ins. Co. ., 126 F.3d 1, 3-5, 12 (1st Cir.1997) (applying administrative employee exemption to marketing representatives who dealt with licensed independent insurance agents who, in turn, dealt with purchasers of insurance products).
When we turn to the “exercise of discretion and independent judgment with respect to matters of significance” requirement, we note that Smith executed nearly all of her duties without direct oversight. In fact, she described herself as the manager of her own business who could run her own territory as she saw fit. Given these descriptions, we conclude that Smith was subject to the administrative employee exemption. Cf. Cote v. Burroughs Wellcome Co., 558 F.Supp. 883, 886-87 (E.D.Pa.1982) (applying administrative employee exemption to medical “detailer” even though description of employee’s duties was more parsimonious than Smith’s description of her duties here).
Smith nevertheless has asked us to limit the significance of her testimony and find that she lacked discretion with respect to matters of significance. Indeed, her attorney contended at oral argument on this appeal that Smith overinflated her importance during the deposition, and that we should consider her statements mere puffery. We are unwilling to ignore Smith’s testimony to hold that there is an issue of material fact merely because of Smith’s request that we do so. In this regard, we point out that when Smith testified she surely understood the significance of her testimony in the context of this case. In the circumstances before us, we accept Smith’s deposition testimony as an accurate description of her position and thus we will affirm the order granting J & J summary judgment.FN3
In reaching our result we have not overlooked our opinion in Martin v. Cooper Elec. Supply Co., 940 F.2d 896 (3d Cir.1991), on which Smith heavily relies. Rather, we find that Cooper is distinguishable on the facts. Moreover, we agree with the District Court that changes in the Secretary’s regulations since Cooper make that case inapplicable here. See Smith, 2008 WL 5427802, at *8-9.”
Interestingly, neither the Court below, nor the Third Circuit, reached the hot button issue of whether Smith was subject to the Outside Sales Exemption, despite the fact that the issue was briefed both on Defendant’s Motion below, and on cross-appeal.
E.D.Ark.: “Payroll Manager” Demonstrated Lack Of Discretion And Independent Judgment; Defendant’s SJ Motion On Administrative Exemption Denied
Reedy v. Rock-Tenn Co. of Arkansas
Plaintiff was, at points relevant to this case, Defendant’s “payroll manager.” The case was before the Court on Defendant’s Motion for summary judgment, based on Defendant’s assertion that Plaintiff was exempt from the FLSA’s overtime provisions under the administrative exemption. Finding issues of fact as to whether Plaintiff had the requisite discretion and independent judgment, the Court denied Defendant’s Motion.
The Court recited the following relevant facts, “Dolores Reedy worked at Rock-Tenn’s folding carton plant in Conway, Arkansas, from June 1986 until March 15, 2007, when she voluntarily resigned. Reedy, who has no college degree or formal accounting training, began as a temporary employee and later worked full-time as a payroll clerk. Rock-Tenn originally treated her as an hourly employee and paid her overtime. At some point, Reedy acquired the title of “Payroll Manager,” was paid on a salary basis, and stopped receiving overtime compensation.
Reedy was responsible for Rock-Tenn’s payroll. Rock-Tenn hired several assistants to work with Reedy in the payroll department, including Linda Suggs, Carolyn Hansen, and Denise Bent. Sometimes assistants worked only as temporary employees. Reedy’s responsibilities in the payroll department included maintaining employee files; wage garnishments; referring Family and Medical Leave Act (“FMLA”) matters to her immediate supervisor, Ken Hogan, or the Benefit Services Center; completing some Employment Eligibility Verification forms based on the documents in employees’ files; and responding to requests for information from the Arkansas Employment Security Department. At some point, Reedy composed a policy reference book for the payroll department.
Reedy says that after she stopped receiving overtime pay, she continued to log her hourly time and report her time to Hogan. She says she spoke with someone in Rock-Tenn’s corporate office about whether she should be exempt from overtime compensation under FLSA. Reedy also says that she and Hogan attended a class in which the instructors conducted an exercise to determine which persons were exempt under the FLSA, and Reedy says that at the end of the exercise she was in the group of persons who were not exempt. Reedy says that she discussed the exercise with Hogan, but Rock-Tenn made no changes to her exempt status.”
After a recitation of the relevant law, the Court applied same stating, “Reedy’s job title of “payroll manager,” standing alone, is of little use in determining whether she was exempt, and the Court must examine evidence relating to the nature of Reedy’s duties. See Lentz v. Hospitality Staffing Solutions, LLC, 2008 WL 269607, at *4 (N.D.Ga. Jan. 28, 2008). A reasonable jury could conclude that Reedy did not exercise discretion and independent judgment in her job as payroll manager. Therefore, the nature of Reedy’s duties and her position relative to the payroll assistants is a disputed issue of fact.
Regarding Reedy’s investigatory duties, Rock-Tenn asserts that she investigated alleged pay discrepancies and notified management if there were any problems requiring remedial action. Rock-Tenn argues that her investigatory duties were similar to those of the postal workers in Dymond, wherein the Eighth Circuit held that postal workers exercised discretion and independent judgment inasmuch as they determined when a situation required immediate action and whether an alleged violation was minor or required reporting to the United States Attorney for prosecution. Dymond, 670 F.2d at 95. Reedy responds that her investigatory responsibilities were distinguishable from the postal workers in Dymond.Reedy says that employees came to her about payroll discrepancies because she was the one who computed payroll, that she had no authority to issue a corrective check, and that she had to receive permission from management before taking any remedial action.
Reedy’s deposition testimony does not demonstrate that her payroll duties required independent judgment or discretion. She reviewed the payroll records in response to complaints; but she was not authorized to proceed with remedial action unless approved by management. Her responsibilities were more clerical than investigatory, unlike those of the postal inspectors in Dymond.Rock-Tenn has failed to show that, as a matter of law, her authority to investigate and remedy payroll discrepancies required the exercise of discretion and independent judgment.
As to the completion of I-9s, Reedy responds that she received no special training qualifying her to recognize a fake employment form, that her job was merely to check the documents in the employee’s personnel file, and that she then signed the I-9s to indicate that Rock-Tenn did in fact have the proper documentation on a particular employee. Rock-Tenn replies that the fact that Reedy signed the I-9s under penalty of perjury-swearing that she had examined the employee’s documents-means that she had to compare and evaluate possible courses of conduct and use her common sense. Rock-Tenn cites to Haywood v. North Am. Van Lines, 121 F.3d 1066, 1073 (7th Cir.1997), for the proposition that an employee who uses common sense satisfies the discretion and independent judgment prong of the administrative employee exception. In that case, however, the Seventh Circuit mentioned “common sense” in a footnote, referencing the employer’s guidelines which informed its employees, whose job it was to negotiate with customers, that they had considerable latitude to negotiate and were to “just use [their] common sense.” Haywood, 121 F.3d at 1073 n. 8. The Seventh Circuit did not hold that every employee who exercises common sense in the performance of a job duty is exercising discretion and independent judgment, and Rock-Tenn has cited no cases holding that completing I-9s amounts to exercising discretion and independent judgment. Furthermore, other than the I-9s and Hogan’s affidavit, there is no other evidence relating to Reedy’s completion of the I-9s, and Reedy was not questioned about the I-9s in her deposition testimony.
As to Reedy’s communications with the Arkansas Employment Security Department, Reedy seemingly characterizes those communications as routine clerical work. Rock-Tenn, relying on Hogan’s affidavit, asserts that Reedy’s responses to the Department’s requests for information often triggered Rock-Tenn’s responsibility to pay unemployment benefits. However, Rock-Tenn offers no authority for the proposition that acting as a liaison between the employer and a governmental agency in and of itself rises to the level of exercising discretion and independent judgment. It is a disputed issue of fact whether Reedy’s work in this area was routine clerical work, providing information to a state department when requested, or actually involved discretion and independent judgment.
Regarding Reedy’s understanding and application of the FMLA, Reedy responds that she was merely instructed to look for certain “red flags” that could indicate that an employee might be asking for FMLA-qualifying leave. Reedy points to Hogan’s deposition, in which he stated that Reedy would bring a potential FMLA-related request to him, and he would make the final decision. Reedy also states that FMLA issues were ultimately referred to a separate entity, the Benefit Services Center. Therefore, Reedy argues, she had no authority to exercise discretion or make decisions regarding FMLA matters. Rock-Tenn replies that Reedy exercised discretion because she stated in deposition testimony that she “felt like [she] was understanding when to ask [Hogan] if [she] should offer an employee FMLA.”Because Reedy stated that she felt like she understood FMLA well enough to notify Hogan of a potential FMLA-related request, Rock-Tenn argues that she was exercising discretion and independent judgment. Reedy characterizes her testimony as showing that she merely looked for “red flags,” whereas Rock-Tenn characterizes her testimony as Reedy touting her ability to interpret and apply the FMLA. After reviewing Reedy’s deposition testimony, it is unclear that either party’s characterization is completely accurate. Thus, the degree to which Reedy actually exercised discretion and independent judgment in reviewing leave requests for FMLA issues and the nature of Reedy’s review of those requests are issues of fact best left to a jury to resolve.
As to Reedy’s job questionnaire responses indicating that she engaged in policy clarification and research, Reedy responds that Rock-Tenn has cited no authority for the proposition that doing research requires the use of discretion or independent judgment with respect to matters of significance. Reedy also states that she eventually had to suspend her research due to other obligations, and Rock-Tenn offers no evidence showing that Reedy actually engaged in research and policy clarification during the period of time relevant to her lawsuit. Furthermore, the record is inadequate to show that whatever research and policy clarification Reedy performed involved the exercise of discretion and independent judgment.
Finally, regarding Reedy’s involvement in garnishing wages, Reedy responds that her duties consisted of merely following the court orders and company procedure, and that Rock-Tenn offers no authority for the proposition that performing wage garnishments amounts to exercising discretion or independent judgment. Rock-Tenn argues that Reedy admitted in deposition testimony that she followed the applicable garnishment laws, and that following those laws required the use of discretion and independent judgment insofar as she was required to “interpret, construe, and explain the laws, policies, and regulations applicable to her work.”In her deposition testimony, however, Reedy stated only that she followed the court orders and the applicable laws regarding precedence when there were multiple garnishments. Reedy did not talk about interpreting, construing, and explaining the laws, policies, and regulations applicable to her work, as Rock-Tenn contends. Rather, it appears from her deposition testimony that, in her position as payroll manager, Reedy simply followed the court orders she received regarding garnishments and then followed the proper procedures where there were multiple garnishments. The nature of Reedy’s work with garnishments and the extent to which her garnishment work involved discretion or independent judgment are disputed issues of fact for a jury to decide.
In summary, issues of fact remain regarding the nature of Reedy’s duties and the extent to which they involved the exercise of discretion or independent judgment.”
M.D.Fla.: Question Of Fact For Jury Whether “Field Coordinator” For Cable Company, Who Managed Subcontractors, Administratively Exempt; Summary Judgment Denied
Driggers v. Cable Television Intsallation & Service, Inc.
This case was before the Court on Defendant’s Motion seeking summary judgment finding that Plaintiff was subject to the Administrative Exemption of the FLSA. Reviewing the evidence in the light most favorable to the Plaintiff, as the non-moving party, the Court denied Defendant’s Motion.
The Court assumed the following facts, as averred by Plaintiff:
“Plaintiff was employed by CTIS, a cable and internet installation services provider. He began his employment in dispatch and then became a cable installer (“Subcontractor”) for two to three years. Subcontractors are independent contractors required to use their own equipment and tools in their installation work as well as provide their own insurance. In May 2005, Plaintiff began working as a Field Coordinator, later called a Field Advisor, and continued in this position until he was terminated in May 2008.
As Field Coordinator, Plaintiff was assigned a hub, which was a geographical area based on zip code. Each morning, he handed out work assignments to subcontractors in his hub, making the assignments based on the time of the scheduled work and, when the workload permitted, on subcontractor ability and experience. Plaintiff also reviewed and entered subcontractor paperwork, which included checking billing documents to assure they were filled out in compliance with the standards of CTIS and its customer Bright House. He adjusted billing codes to comply with the job specifications and billing rules, often seeking guidance from Bright House.
Plaintiff was responsible for informing the subcontractors in his hub of changes to job specifications put out by Bright House and CTIS. He sometimes explained what the changes meant and suggested approaches to performing the job to the new specifications. If a subcontractor had a problem with an installation, Plaintiff would try to help the subcontractor figure out how to make the job comply with specifications, and if he could not, he would contact Bright House for further instructions. Plaintiff did not have the authority to deviate from job specifications without first consulting Bright House.
In the afternoons Plaintiff performed inspections. He had the authority to inspect installations of his choice to ensure compliance with job specifications. The number of these quality control inspections varied based upon Plaintiff’s workload in the office and number of damage inspections assigned by Bright House. If his quality control inspection revealed deviations from specifications, Plaintiff would have the installation subcontractor fix the problem to meet job specifications or assign another subcontractor to do so. Occasionally Plaintiff performed the repair work himself When customers had complaints about installations, they contacted Bright House or CTIS who in turn would contact Plaintiff, instructing him to inspect the damage. Plaintiff performed these inspections to determine if the subcontractor was responsible for the damage. If the subcontractor made a mistake that caused the damage, the subcontractor and his insurance were responsible. If the damage was caused by the subcontractor following specifications, Plaintiff would contact CTIS for approval of a repair or assign another subcontractor to handle the issue. If the subcontractor was not responsible for the damage, Plaintiff would not offer repairs and the customer would have to contact CTIS to take the claim further.”
The Court noted, “[i]n their filings, both parties state that Plaintiff satisfies the first and second prongs of the administrative exemption. Defendant has described Plaintiff’s primary duty as quality assurance, including assigning work orders, communicating changes in job specifications, checking subcontractor paperwork for compliance with policy, and ensuring subcontractor installations met specifications and quality standards. For the purposes of summary judgment, Plaintiff has agreed to this description and its satisfying the second prong. Plaintiff challenges only the use of discretion and independent judgment with respect to matters of significance in the performance of Plaintiffs primary duty as required in the third prong.”
Although the Court agreed with Defendant, that a jury could find that, since 4 or the 10 tests for independent judgment and discretion laid out in the CFR were satisfied, it was a question of fact of the jury whether Plaintiff met the requisite independent judgment and discretion element of the Administrative Exemption. Thus, the Court denied summary judgment stating, “[t]he undisputed facts allow a jury to reasonably find that Plaintiff has met some or none of the factors to be considered for the applicability of the third prong of the administrative exemption. The jury could determine that Plaintiffs use of skill and experience in the performance of his primary duty and his limited leeway in decisions do not allow him to qualify under the administrative exemption. Cotton v. HFS-USA, Inc., No. 8:08-cv-251-T-33TGW, 2009 WL 1396351 (M.D.Fla. May 18, 2009) (summary judgment order) (finding an employee who performed quality control inspections through comparison to standards and who assigned subcontractor work and repairs without direct supervision did not exercise discretion and independent judgment because most of his decisions were based on experience in the industry, well-established standards, and the use of common sense, and because he sought approval for deviations from specifications and frequently spoke with his superiors). The motion for summary judgment is therefore denied.”
W.D.Va.: “Assistant Manager” At Auto Parts Store Not Administrative Exempt; Damages To Be Calculated At Time And A Half Not Half-time
Brown v. Nipper Auto Parts and Supplies, Inc.
The case was before the Court on cross motions for summary judgment pertaining to whether Plaintiff was exempt from the FLSA’s overtime provisions under the FLSA. Additionally, Plaintiff moved for summary judgment on the issues of willfulness (3 year statute, as well as liquidated damages), and for a finding that the method under which his overtime should be calculated was the default time and a half method. As discussed below, the Court found Plaintiff nonexempt and further held that his damages were due to be calculated based on time and a half and not the fluctuating workweek’s half-time formula.
Addressing the exemption issue first, the Court noted, “Brown’s primary duties were sales and other non-exempt work, not running or servicing; the business. Nipper Auto attempts to characterize Brown’s duties as procurement and quality control, exempt activities; but since his activities generally concerned ordering auto parts based on customers’ requests, these duties are more aptly described as sales, a non-exempt activity. Roger Nipper has indicated no significant managerial decisions or changes that he has made during Brown’s tenure at Nipper Auto in which Brown had input. Indeed, Nipper Auto’s music section, where Brown is purported to have had primary authority, existed before Brown’s hiring and has continued to exist after his termination. Finally, Brown’s intermittent supervision of Shultz fails to show that his primary duty was an exempt activity.” Therefore, the Court found Brown nonexempt.
Later in the decision, the Court addressed the issue of calculating Plaintiff’s damages: “Nipper Auto argues that if Brown is entitled to overtime compensation, it should be calculated using the fluctuating workweek method of payment (the “FWW”), under which an employee’s overtime pay rate is half his regular pay rate. Brown argues that the FWW should not apply and that his overtime compensation rate should be one and one-half times his regular rate. The court agrees with Brown.
Generally, the rate for overtime compensation is one and one-half times the regular rate of pay, 29 U.S.C. § 207(a)(1), but when the FWW method applies, the rate for overtime compensation is one-half the regular pay. 29 C.F.R. § 778.114(a) (2003); Knight v. Morris, 693 F.Supp. 439, 445 (W.D.Va.1988). The FWW method is not an exception to the normal method of computing overtime compensation under the FLSA, “[i]t merely provides an alternative means by which an employer can determine its employees’ regular and overtime rate of pay.” Flood v. New Hanover County, 125 F.3d 249, 252 (4th Cir.1997). The employer must satisfy five conditions in order to take advantage of the FWW calculation: (1) the employee’s hours must fluctuate from week to week, (2) the employee must receive a fixed salary, (3) the salary must meet the minimum wage standards, (4) the employee and the employer must have a clear mutual understanding that the salary (not including overtime premiums) is fixed regardless of the number of hours the employee works, and (5) the employee must receive overtime compensation for hours worked in excess of forty hours, not less than the one-half rate of pay. Id.; 29 C.F.R. § 778.114(a). Though the first three FWW requirements are established, the court finds that the FWW method does not apply because Nipper Auto cannot fulfill the fourth and fifth requirements.
Under the fourth requirement, the parties must have a clear mutual understanding that “the fixed salary is to be compensation for all straight time hours worked, whether few or many.” Mayhew, 125 F.3d at 219. The burden is on the employer to show the existence of a clear mutual understanding. Monahan v. County of Chesterfield, 95 F.3d 1263, 1275 n. 12 (4th Cir.1996). If the employer believed the employee was exempt from overtime compensation, “then it was not possible … to have had a clear mutual understanding … that [the employee] was subject to [a] calculation method applicable only to non-exempt employees who are entitled to overtime compensation.” Cowan v. Treetop Enter., 163 F.Supp.2d 930, 942 (M.D.Tenn.2001); (quoting Rainey v. Am. Forest & Paper Ass’n Inc., 26 F.Supp.2d 82, 102 (D.D.C.1998)).
Nipper Auto cannot establish the fourth requirement because its principal argument is that Brown is an FLSA-exempt employee not entitled to any overtime compensation; in the alternative, Nipper Auto argues that the parties had an implied understanding with Brown regarding his salary and overtime compensation. If Nipper Auto believed Brown was exempt, the requisite clear mutual understanding for the application of the FWW method could not have existed. Rainey, 26 F.Supp.2d at 102. Both parties understood that Brown would receive no additional salary no matter how many hours he worked in a given week, but § 778.114(a) specifies that the fixed salary does not include overtime premiums. The court finds that, because Nipper Auto believed Brown was an FLSA-exempt employee, it has failed to create a material issue of fact as to the clear mutual understanding required to apply the FWW method.
In addition to this clear mutual understanding, under the fifth FWW requirement, the employer must also demonstrate that the employee has actually received some form of overtime compensation. See Cowan, 163 F.Supp.2d at 941 (“Moreover, to comply 29 C.F.R. Section 778.114 requires a contemporaneous payment of the half-time premium for an employer to avail itself of the fluctuating workweek provision.”). Indeed, the Fourth Circuit has applied the FWW method only when the employee has received contemporaneous payment for overtime. See generally Flood, 125 F.3d at 252 (applying the FWW where the employer contemporaneously provided some form of overtime compensation); Griffin, 142 F.3d at 715 (same); Mayhew, 125 F.3d at 218 (same). It is undisputed that Nipper Auto did not pay Brown any overtime compensation during his employment. Because no form of overtime compensation was provided, Nipper Auto cannot apply the FWW method retroactively. Flood, 125 F.3d at 249; Griffin, 142 F.3d at 716. The court finds that Nipper Auto’s evidence is insufficient to allow a reasonable jury to conclude that Brown is subject to the FWW method of compensation; therefore, Brown’s overtime pay rate is one and one-half times his regular rate of pay. The court grants Brown’s motion for summary judgment on this matter.”
M.D.Fla.: “Field Supervisor” For Company Performing Finishing Services For Residential Builders Not Subject To Administrative Exemption
Cotten v. HFS-USA, Inc.
This case was before the Court on Defendant’s motion for summary judgment, alleging that Plaintiff, a “Field Supervisor,” for a construction “finishing” company, was exempt from the overtime provisions of FLSA under the “administrative exemption.” After reviewing the elements of the Administrative Exemption, the Court found that Plaintiff was not Administratively Exempt, because his primary duty was not directly related to the management of general business operations of Defendant, and because he did not exercise the requisite independent judgment or discretion with regard to matters of significance.
Addressing the “related to management of general business operations” prong first, the Court stated, “[b]ased on the undisputed evidence before the Court, it cannot be said that Cotten’s primary duties as a field supervisor were directly related to the management or general business operations of HFS. Although it can be said that Cotten “managed” certain assigned installation sites, his duties were concerned with ensuring that the installers received their work orders, retrieved the correct materials from the warehouse, and completed the installation job as specified in the contract and the work order and in compliance with specified standards. Cotten was not responsible for negotiating or executing contracts, creating work orders, or developing the applicable standards….
Cotten’s job duties are precisely the type that have been found to be consistent with production rather than administration. For example, in Sack v. Miami Helicopter Service, Inc., a court in the Southern District of Florida determined that an employee’s duties of opening work orders, planning repair work, ordering required materials, directing mechanics as to what work to perform, determining whether certain parts complied with F.A.A. standards, and directing repair or replacement of parts that failed inspection did not qualify as administrative tasks related to operation of the business. 986 F.Supp. 1456, 1470-71 (S.D.Fla.1997). The court found that these activities were an integral part of the production of the business and therefore did not directly relate to management policies or general business operations. Id.”
Next, the Court analyzed the “discretion or independent judgment” prong of the Administrative Exemption, stating, “Cotten spent much of his time performing inspections, which took place at all phases of the installation process. These inspections were conducted according to pre-established industry standards or the terms of the particular contract. (Id. at 5). Cotten had no specialized training and simply compared what he saw at the job site with the standards he had previously been directed to conform with. (Id.). He filled out forms documenting the inspection results, and spoke with builders or his supervisors when defects were noted.(Id.). These routine inspection duties did not require the exercise of significant discretion or independent judgment…
Of course, Cotten’s duties were not limited to inspections. If an installation was not completed properly or on time, Cotten was responsible for bringing the job into compliance, either by directing the original installer to make the necessary repairs or, on rare occasions, by retaining a second installer to do the necessary work. Although Crowder has attested that field supervisors were free to assign “the installers of their choice” to a particular job, this is not entirely true. HFS maintained a list of qualified installers that field supervisors were required to use. (Id.). Cotten has sworn that he never used an installer that was not on the approved list.”
Therefore, the Court concluded, “[u]pon due consideration of the record evidence regarding Cotten’s work activities, the Court concludes that Cotten’s primary duties at HFS did not involve the exercise of discretion and independent judgment with respect to matters of significance. As previously discussed, cases considering employees with very similar duties to Cotten have declined to apply the administrative exemption.”
The Plaintiff in this case is represented by Andrew Frisch. If you believe that you have been similarly misclassified as exempt under the FLSA, and wrongly denied overtime, call 1-888-OVERTIME or go to EMAIL CONSULTATION for a free consultation with Andrew Frisch today.