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4th Cir.: Job Applicant Lacked Standing Under § 215 for Retaliation Against Prospective Employer; Protections Extend Only to “Employees”
Dellinger v. Science Applications International Corp.
Plaintiff commenced this action under the Fair Labor Standards Act of 1938 (“FLSA”) against Science Applications International Corporation which, she alleges, retaliated against her, in violation of the FLSA’s anti-retaliation provision, 29 U.S.C. § 215(a)(3), by refusing to hire her after learning that she had sued her former employer under the FLSA. As discussed here, the district court granted Science Applications’ motion to dismiss, concluding that Plaintiff was not an “employee” of Science Applications, as defined in the FLSA, and that the FLSA’s anti-retaliation provision does not cover prospective employees. On appeal, Dellinger contended that the district court’s reading of the statute was too narrow and that the FLSA’s anti-retaliation provision protects any employee that has been the victim of FLSA retaliation by “any person,” including future employers. Affirming the dismissal, the Fourth Circuit concluded that the FLSA gives an employee the right to sue only his or her current or former employer and that a prospective employee cannot sue a prospective employer for retaliation.
Rejecting the common sense approach proffered by the Plaintiff (and supported by the DOL, who filed an Amicus Brief in support of the Plaintiff), the Fourth Circuit reasoned:
“While § 215(a)(3) does prohibit all “persons” from engaging in certain acts, including retaliation against employees, it does not authorize employees to sue “any person.” An employee may only sue employers for retaliation, as explicitly provided in § 216(b). The use of the term “person” in § 215(a) is attributable to the structure of the provision, which prohibits a number of separate acts in addition to retaliation, not all of which are acts performed by employers. For instance, § 215(a)(1) prohibits any person from transporting “any goods in the production of which any employee was employed in violation of section 206 [minimum wages] or section 207 [maximum hours] of this title.” Thus, Congress prohibited the shipment of goods produced by employees who are paid in violation of the Act, and for enforcement, it authorized the criminal prosecution of any “person” violating the prohibition. See 29 U.S.C. § 216(a). Just as there is no remedy for an employee to sue such a shipper, there is also no remedy for an employee to sue anyone but his employer for violations of the anti-retaliation provision. Accordingly, if the person retaliating against an employee is not an employer, the person is not subject to a private civil action by an employee under § 216(b).
Considering the Act more broadly, we cannot overlook the fact that the FLSA was intended at its core to provide minimum wages and maximum hours of work to ensure employees a minimum standard of living necessary for “health, efficiency, and general well-being of workers.” 29 U.S.C. § 202(a). The anti-retaliation provision is included, not as a free-standing protection against any societal retaliation, but rather as an effort “to foster a climate in which compliance with the substantive provisions of the [FLSA] would be enhanced.” Mitchell v. Robert DeMario Jewelry, Inc., 361 U.S. 288, 293 (1960). Thus, the anti-retaliation provision was meant to ensure that employees could sue to obtain minimum wages and maximum hours from their employers without the employers taking adverse action against them for the exercise of those rights. This purpose is inherent in the employment relationship, which is the context in which the substantive provisions operate.
We have been unable to find any case that extends FLSA protections to applicants or prospective employees. Indeed, prior cases have reached the conclusion that we have, applying the anti-retaliation provision only within the employer-employee relationship. See, e.g., Glover v. City of North Charleston, S.C., 942 F.Supp. 243, 245 (D.S.C.1996) (noting that the “any employee” language in the anti-retaliation provision mandates that the plaintiff have an employment relationship with the defendant); Harper v. San Luis Valley Reg’l Med. Ctr., 848 F.Supp. 911 (D.Col.1994) (same); cf. Darveau v. Detecon, Inc., 515 F.3d 334, 340 (4th Cir.2008) (requiring, as part of a prima facie FLSA retaliation case, a showing of “adverse action by the employer”); Dunlop v. Carriage Carpet Co., 548 F.2d 139 (6th Cir.1977) (holding that an employee could sue his former employer when the former employer retaliated against the employee by advising a prospective employer that the employee had previously filed an FLSA suit).
We are sympathetic to Dellinger’s argument that it could be problematic to permit future employers effectively to discriminate against prospective employees for having exercised their rights under the FLSA in the past. The notion, however, that any person who once in the past sued an employer could then sue any prospective employer claiming that she was denied employment because of her past litigation would clearly broaden the scope of the FLSA beyond its explicit purpose of fixing minimum wages and maximum hours between employees and employers. We are, of course, not free to broaden the scope of a statute whose scope is defined in plain terms, even when “morally unacceptable retaliatory conduct” may be involved. Ball v. Memphis Bar–B–Q Co., 228 F.3d 360, 364 (4th Cir.2000).
Dellinger urges us to extend the FLSA’s definition of “employee” to protect job applicants, pointing to other statutes under which applicants are protected. In particular, she refers to the Energy Reorganization Act, the National Labor Relations Act (“NLRA”), the Occupational Safety and Health Act (“OSHA”), and the Pipeline Safety Improvement Act. Reference to these statutes, however, does not advance her cause. The case cited by Dellinger with respect to the Energy Reorganization Act merely assumed, without deciding, that an applicant was covered under that Act. See Doyle v. Secretary of Labor, 285 F.3d 243, 251 n. 13 (3d Cir.2002). While the NLRA does protect prospective employees from retaliation, the Act itself defines “employee” more broadly than does the FLSA, providing that the term “employee” “shall not be limited to the employees of a particular employer” unless explicitly stated. See 29 U.S.C. § 152(3). With respect to OSHA and the Pipeline Safety Improvement Act, regulations implementing those statutes have been promulgated to extend protections to prospective employees. See 29 C.F.R. § 1977.5(b) (OSHA); 29 C.F.R. § 1981.101 (Pipeline Safety Improvement Act). The Secretary of Labor has not, however, promulgated a similar regulation for the FLSA.
Because we conclude that the text and purpose of the Fair Labor Standards Act of 1938 link the Act’s application closely to the employment relationship and because the text of the applicable remedy allows for private civil actions only by employees against their employers, we hold that the FLSA anti-retaliation provision, 29 U.S.C. § 215(a)(3), does not authorize prospective employees to bring retaliation claims against prospective employers. The judgment of the district court is accordingly affirmed.”
In a must-read strong dissent, authored by Judge King, he indicated that he would have reversed the dismissal at the district court below. Following a lengthy discussion of the parallels in this case to the Robinson case- in which the Supreme Court reversed an en banc decision of the Fourth Circuit and concluded that similar statutory text in Title VII should be read expansively to protect former employees- Judge King explained that he would have held that job applicants are protected by § 215. Judge King challenges the majority who he asserts ignored binding opinions from both the Supreme Court and the Fourth Circuit in favor of what he calls their “textualist” approach:
“It is unlawful under the FLSA ‘for any person,’ not just employers, ‘to discharge or in any other manner discriminate against any employee because such employee has filed any complaint or instituted … any proceeding under or related to this chapter[.]’ 29 U.S.C. § 215(a), –(a)(3). The Act criminalizes willful violations of § 215, and it also provides civil recourse to ’employees affected’ by the retaliatory acts described in subsection (a)(3). See § 216(a), –(b). Affected employees are entitled to “legal or equitable relief as may be appropriate to effectuate the purposes of” the antiretaliation provision, ‘including without limitation employment, reinstatement, promotion, and the payment of wages lost and an additional equal amount as liquidated damages.’ § 216(b). Liability attaches to ‘[a]ny employer,’ id., which ‘includes any person acting directly or indirectly in the interest of an employer in relation to an employee .’ § 203(d).
A plain reading of these several sections of the Act, taken together, indicates that Congress was concerned enough with retaliatory conduct to impose criminal penalties on actual decisionmakers (“any person”), regardless of whether that person could also be considered the employing entity or was acting at the entity’s behest. Civil liability for retaliation, on the other hand, is reserved for employers and their agents who are sued by an “employee,” which generally means “any individual employed by an employer.” § 203(e)(1). Science Applications is undoubtedly an employer subject to the Act, and Ms. Dellinger broadly qualifies as an employee, having once sued her former employer for allegedly violating the FLSA. It does not follow perforce, however, that “Dellinger could only sue Science Applications if she could show … that Science Applications was her employer.” Ante at 7 (emphasis added).
It would hardly be a stretch to interpret the FLSA to permit Ms. Dellinger’s action, particularly considering that other, similar remedial statutes already apply to employees in her situation…
…I am therefore left to wonder why, in the face of a statute’s relative silence as to a material enforcement term, we must presume that a particular avenue is foreclosed because it is not explicitly mentioned, rather than permitted because it is not specifically prohibited. See Healy Tibbitts Builders, Inc. v. Dir., Office of Workers’ Comp. Programs, 444 F.3d 1095, 1100 (9th Cir.2006) (“[F]aced with two reasonable and conflicting interpretations, [an act] should be interpreted to further its remedial purpose.”). The majority’s decision today bucks the trend begun by Robinson, which is indisputably toward an expansive interpretation of protective statutes like Title VII and the FLSA to thwart employer retaliation. See, e.g., Gomez–Perez v. Potter, 553 U.S. 474, 491 (2008) (concluding that, under applicable provision of ADEA, federal employee may state claim for retaliation as form of discrimination); CBOCS West, Inc. v. Humphries, 553 U.S. 442, 457 (2008) (ruling that anti-discrimination provisions of 42 U.S.C. § 1981 encompass action for retaliation); Jackson v. Birmingham Bd. of Educ., 544 U.S. 167, 178 (2005) (same with respect to Title IX).
Behind this impressive array of authority is the Supreme Court’s acknowledgment of the vital role that antiretaliation provisions play in regulating a vast range of undesirable behaviors on the part of employers. See, e.g., Crawford v. Metro. Gov’t of Nashville & Davidson Cnty., Tenn., 129 S.Ct. 846, 852 (2009) (observing that fear of retaliation is primary motivation behind employees’ failure to voice concerns about bias and discrimination and reversing Sixth Circuit’s judgment in employer’s favor as inconsistent with primary objective of Title VII to avoid harm to employees) (citations omitted); Burlington N. & Santa Fe Ry. Co. v. White, 548 U.S. 53, 57 (2006) (explaining that liability for Title VII retaliation extends well beyond those actions affecting terms and conditions of employment to include employer’s acts outside workplace that are “materially adverse to a reasonable employee or job applicant”). There is no reason to doubt that similar concerns obtain in the FLSA context, as expressed in Reyes–Fuentes v. Shannon Produce Farm, 671 F.Supp.2d 1365, 1368 (S.D.Ga.2009) (“Congress chose to rely upon information and complaints from employees seeking to vindicate their rights. Plainly, effective enforcement could thus only be expected if employees felt free to approach officials with their grievances”) (citations omitted).”
Given the strong dissent of Judge King, it is possible if not likely that this case might be headed to the Supreme Court. This is certainly one to keep an eye on.
Click Dellinger v. Science Applications International Corp. to read the entire Opinion and Dissent.
In his recent article, “Taking the Employer Out of Employment Law? Accountability for Wage and Hour Violations in an Age of Enterprise Disaggregation,” Professor, Timothy P. Glynn of Seton Hall School of Law makes a compelling argument that the answer is yes.
In the abstract to his article, Professor Glynn explains:
“Violations of wage and hour mandates are widespread at the low end of the labor market. The disaggregation of business enterprises into smaller, independent parts has been an important factor in this growing problem. Limitations on liability for work-law violations invite such arrangements since statutory protections for workers usually impose duties only on “employers.” That status, in turn, hinges on the level of control a firm exercises over the work, and when exacting control is not necessary, firms usually can avoid accountability by shifting work to independent third-party suppliers. This creates severe enforcement obstacles: detection becomes difficult, labor suppliers often are undercapitalized, and coverage uncertainties lead to unprosecuted claims and discounted settlements. Thus, disaggregation does far more than shift legal responsibility from one entity to another: it allows end-user firms to avoid noncompliance risks while benefiting from labor at a price discounted by the unlikelihood of enforcement.”
Thus, Professor Glynn proposes “eliminating the ’employer’ coverage barrier altogether.” Under his approach, “commercial actors would be held strictly liable for wage and hour violations in the production of any goods and services they purchase, sell, or distribute, whether directly or through intermediaries. The only limitation is that a firm’s liability would not exceed the proportion of the violations attributable to the goods or services it purchases, sells, or distributes.”
Adopting this less restrictive coverage requirement would lead to easier enforcement of wage and hour laws and thus, fewer abuses at the low end of the labor market. It doesn’t appear that there’s any push to adopt these logical changes which would no doubt further the remedial goals of wage and hour laws, but it’s a refreshing perspective nonetheless. In this day and age, Professor Glynn’s recognition that a modern fractured economy is far different than the economy of the past, with fewer larger actors, is largely unaddressed by wage and hour laws that are currently on the books.
Click Abstract to read more on Professor Glynn’s work.
Thanks to the Workplace Prof Blog for bringing this to our attention.
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.
S.D.Fla.: Counterclaim For Indemnity Against FLSA Plaintiff In Her Supervisory Capacity Dismissed; FLSA Does Not Permit Such Claims
Quintana v. Explorer Enterprises, Inc.
This case was before the Court on the Plaintiff’s Motion to Dismiss Defendants’ Counterclaim Against Marcia Martinez. Martinez had commenced suit against the Defendants alleging violations of the FLSA. Specifically, Plaintiff sought to dismiss the Defendants’ counterclaims against her alleging that she should indemnify them, as an employer in her supervisory capacity. Dismissing the counterclaim, the Court reasoned that such a counterclaim was not permissible under the FLSA.
The Court explained:
“The defendants brought the counterclaim under the FSLA alleging that Ms. Martinez is an employer within the meaning of the FLSA. The defendants claim that Ms. Martinez is potentially liable for violating the FLSA as a person who is “acting directly or indirectly in the interest of an employer in relation to an employee .” 29 U.S.C. § 203(d). In their Response (DE # 50, 4/20/10), the defendants claim that they are “unaware of a single case holding that one employer within the meaning of the FLSA is prohibited from seeking indemnification or contribution from a second employer with [sic] the meaning of the FLSA, and Martinez cites none.” (DE # 50 p. 5; 4/20/10) Although the Eleventh Circuit has not addressed the issue, other circuits have. In LeCompte v. Chrysler Credit Corp., 780 F.2d 1260 (5th Cir.1986), which is cited by the plaintiff, the Fifth Circuit found that the district court property dismissed the counterclaim for indemnity against two plaintiffs in their supervisory capacity. The defendants fail to distinguish LeCompte.
Instead, the defendants unsuccessfully attempt to distinguish the Tenth Circuit decision in Martin v. Gingerbread House, Inc., 977 F.2d 1405 (10th Cir.1992), on the basis that it was a third-party complaint rather than a counterclaim. Notably, in Martin, the Tenth Circuit expressly agreed with the Fourth and Fifth Circuits’ holdings that “indemnity actions against employees work against the policy of the FLSA.” Id. at 1408. In Martin, the Tenth Circuit explained that
[c]ompliance with the FLSA will not be furthered if employees must defend against indemnity actions. Such actions are not part of the comprehensive statutory scheme set forth by Congress. The conflict between the purposes of federal law and a state cause of action require the latter to yield. We therefore hold that a third party complaint by an employer seeking indemnity from an employee is preempted. Id.
In their Response (DE # 50, 4/20/10), the defendants concede that there are very few cases on point. The defendants, however, believe that the lack of case holdings prohibiting such indemnification indicates that defendants may seek such relief. Although the Eleventh Circuit has not addressed this issue, the circuits that have addressed the issue consistently found that indemnification claims against employees or owners are contrary to public policy and the legislative intent of the FLSA. See, e.g., LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986); Lyle v. Food Lion, Inc., 954 F.2d 984, 987 (4th Cir.1992); Martin v. Gingerbread House, Inc., 977 F.2d 1405, 1407 (10th Cir.1992); Herman v. RSR Sec. Services Ltd., 172 F.3d 132, 144 (2d Cir.1999).
The dispositive issue raised in the plaintiff’s motion to dismiss is whether the indemnification sought by the defendants would be allowed under the FLSA. The Supreme Court addressed a related issue in Northwest Airlines v. Transp. Workers Union, 451 U.S. 77, 94-95 (1981). The Supreme Court analyzed the legislative intent regarding an implied right to contribution under the Equal Pay Act when the Act contains no reference of such contribution. The Court determined that unless the “congressional intent can be inferred from the language of the statute, the statutory structure, or some other source, the essential predicate for implication of a private remedy simply does not exist.” Id. (emphasis added).
Several circuits have applied the reasoning of Northwest Airlines to their analysis of the viability of an indemnity claim under the FLSA. See, e.g., LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986); Lyle v. Food Lion, Inc., 954 F.2d 984, 987 (4th Cir.1992); Martin v. Gingerbread House, Inc., 977 F.2d 1405, 1408 (10th Cir.1992); Herman v. RSR Sec. Services Ltd., 172 F.3d 132, 144 (2d Cir.1999); Villareal v. El Chile, Inc., 601 F.Supp.2d, 1011, 1015 (N.D.Ill.2009); Spellman v. American Eagle Express, Inc., 680 F.Supp.2d 188, 191 (D.C.Cir.2010). Additionally, the Second, Fourth, Fifth and Tenth Circuits have consistently held that indemnity claims against employees under the FLSA are preempted by the Supremacy Clause of the United States Constitution. See LeCompte, 780 F.2d at 1264. See also Spellman, 680 F.Supp.2d at 191; Villareal, 601 F.Supp.2d at 1015; Lyle, 954 F.2d at 987 (adopting the reasoning of the court in LeCompte ).
The FLSA does not mention a right to seek indemnity. Indemnity against an employee would be contrary to the legislative intent. See LeCompte v. Chrysler Credit Corp., 780 F.2d 1260, 1264 (5th Cir.1986) (noting that such indemnity action would “undermine employers’ incentive to abide by the Act”). In Herman, the Second Circuit noted that the text of the FLSA makes no provision for contribution or indemnification and the Act’s legislative history is silent on a right to contribution or indemnification. Herman, 172 F.3d at 144; see also Lyle, 954 F.2d at 987 (holding that indemnity against an employee “is something the FLSA simply will not allow”). Most recently, in Villareal, 601 F.Supp.2d at 1015, the court affirmed the dismissal of an employer’s cross-claim against its supervisory personnel for indemnity claims under the FLSA (citing LeCompte ).
In LeCompte, the Fifth Circuit acknowledged that the supervisory personnel were partially at fault for the violation that resulted. Nonetheless, the court held that an indemnity claim against such personnel under the FLSA would be inappropriate as it would frustrate Congress’ purpose in enacting the FLSA. Id. at 1264. Similarly, in the case at hand, the defendants’ basis for the counterclaim against Ms. Martinez, as a store manager, is that she was the person most responsible for setting the plaintiffs’ rates of pay and schedule and that she was in the best position to ensure the defendants’ compliance with the FLSA. Applying the reasoning of the court in LeCompte, the counterclaim for indemnity is not viable.”
Thus, the Court granted Plaintiff’s Motion and dismissed Defendants’ counterclaim.
To read the entire order click here.
E.D.Tex.: Where Class Consists Of Over 1000 Plaintiffs, Court Limits Discovery To 91 Randomly Chosen Representative “Discovery Plaintiffs”
Nelson v. American Standard, Inc.
Before the Court is Plaintiffs’ motion for entry of limited discovery order, filed in support of Plaintiffs’ proposal contained in the Joint Motion for Entry of Discovery and Case Management Plan and Scheduling Order. Although the parties largely agreed on the extent of discovery to be conducted, Plaintiffs sought an Order limiting such discovery a representative sampling of 91 “discovery Plaintiffs,” while Defendants claimed they should be entitled to seek discovery from every individual class member. Agreeing with Plaintiffs, the Court pared discovery down to the 91 representative Plaintiffs.
The Court described the dispute as follows:
“[The parties] have agreed to the scope of oral discovery and to a schedule governing the deadlines in this case. The parties have also agreed that they will select individual case participants as “Discovery Plaintiffs” as a representative sample from all of the individuals who are named plaintiffs or who have opted into the litigation. The “Discovery Plaintiffs” are to be selected as follows: (1) three Named Plaintiffs (Nelson, Gross, and Dewberry); (2) 19 individuals who submitted declarations in support of the Motion for Notice; and (3) 84 opt-ins selected at random by the parties from the 1,328 individuals in the consolidated case, with a specified number of opt-ins for each location. The fundamental disagreement which remains to be resolved by the Court is the scope of written discovery. The central disagreement is that Plaintiffs seek to limit written discovery to the Discovery Plaintiffs who may be used at trial while Defendant seeks to allow written discovery to be issued to the entire class of 1,328 opt-in plaintiffs in some capacity. In the joint motion, both sides present their proposals on how written discovery should be conducted. In support of Plaintiffs’ proposal contained in the joint motion for discovery order, Plaintiffs’ also filed a motion for entry of limited discovery order. (Dkt. No. 110.) Plaintiffs seek to limit both written and oral discovery of class members to the agreed upon group of 91 Discovery Plaintiffs rather than to require all 1,328 participants to be subjected to written discovery and disclosures. Defendant seeks individualized written discovery for all opt-in plaintiffs.”
Citing other courts that have reached the same conclusion, the Court ordered representative discovery, rather than individualized discovery, stating:
“The Eastern District of Texas, and specifically this Court, is one of many jurisdictions that has ordered limited, representative discovery of the named plaintiffs and opt-in plaintiffs in FLSA actions. Schiff et al. v. Racetrac Petroleum, Inc., 2:03-cv-402-TJW, Dkt. No. 111 (E.D. Tex. June 8, 2005) (limiting discovery to a random sample of 35 opt-in plaintiffs). Numerous other courts also have found that individualized discovery is generally not appropriate in FLSA collective actions and should be limited to a representative sample of the entire group. See Smith v. Lowes Home Ctrs., 236 F.R.D. 354, 356-58 (S.D.Ohio 2006) (denying defendant’s request for individualized discovery of more than 1,500 opt-ins and instead ordering a representative sample of 90 randomly selected individuals from the opt-in plaintiffs); Cranney v. Carriage Services, Inc., 2008 WL 2457912 at *3-5 (D.Nev. June 16, 2008) (limiting individualized discovery to 10% of a relevant combination of workers and work sites for the opt-in plaintiffs). The Court finds that limiting discovery in a FLSA action to a relevant sample minimizes the burden imposed on the plaintiffs “while affording the defendant a reasonable opportunity to explore, discover and establish an evidentiary basis for its defenses.” Smith, 236 F.R.D. at 357-58. Further, the Court finds that there is no due process violation to Defendant in limiting written discovery to the Discovery Plaintiffs.
In this case “representative” discovery refers not only to the named plaintiffs but to a sample of 91 largely randomly selected individuals that the parties have agreed to designate as “Discovery Plaintiffs.” The Court finds that there is no reason that all defenses and alleged differences among class members cannot be ascertained and articulated based on the results of full discovery for the “Discovery Plaintiffs.” If the discovery shows defenses and differences for these individuals, Defendant Trane will be able to make its case for decertification or summary judgment. The fundamental precept of statistics and sampling is that meaningful differences among class members can be determined from a sampling of individuals. The Court finds that the agreed upon group of “Discovery Plaintiffs” is a statistically acceptable representative sample of the entire group of opt-in Plaintiffs. Defendant Trane has not shown that the representative sample needs expanding to all class members for discovery purposes. However, if after conducting the discovery of the representative sample Defendant Trane can demonstrate to the Court that broader discovery is appropriate and necessary, the Defendant can so move.
Accordingly, it is ORDERED that written discovery in this case be limited to the named plaintiffs and the 91 opt-in plaintiffs who the parties have agreed to designate as Discovery Plaintiffs. A concurrent order will be entered that adopts the parties’ joint proposal for discovery and case management plan and adopts the Plaintiffs’ proposal on written discovery, consistent with this order. Thus, Plaintiffs’ Motion (Dkt. No. 110) is hereby GRANTED.”