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SCHAEFER-LaROSE v. ELI LILLY & CO.
679 F.3d 560 (2012)
United States Court of Appeals, Seventh Circuit.
Argued October 18, 2011.
(f) An employee does not exercise discretion and independent judgment with respect to matters of significance merely because the employer will experience financial losses if the employee fails to perform the job properly. For example, a messenger who is entrusted with carrying large sums of money does not exercise discretion and independent judgment with respect to matters of significance even though serious consequences may flow from the employee's neglect. Similarly, an employee who operates very expensive equipment does not exercise discretion and independent judgment with respect to matters of significance merely because improper performance of the employee's duties may cause serious financial loss to the employer. Id. § 541.202 (internal citation omitted). The plaintiffs contend that their work fails to meet the standard set forth in the regulation. The Department of Labor supports the position of the plaintiffs, relying principally on its own prior opinion letters in other contexts, as well as the Second Circuit's decision in Novartis, 611 F.3d 141. By contrast, the pharmaceutical companies assert that the representatives had a host of core duties committed to their discretion, including determining how best to gain access to particular physicians and managing their limited discretionary budgets. Their primary argument, however, focuses on the discretion that an individual representative must employ in the course of an individual sales call with a physician to communicate effectively his employer's core message to the specific audience and to address a physician's particular concerns. The application of the discretion and independent judgment prong in the pharmaceutical sales context is a question of
first impression in this circuit. Several of our sister circuits have considered similar cases, however, and, we begin our consideration of this facet of the case by examining their holdings. We focus on two decisions that place the issue before us in stark relief. The first is the case upon which the plaintiffs, supported by the Secretary, rest a substantial part of their argument, the Second Circuit's decision in Novartis, 611 F.3d 141. The employer in Novartis raised almost identical arguments concerning the discretion exercised by its representatives to those that Abbott and Lilly raise here. The Second Circuit rejected those arguments, largely by "[c]omparing the record as to the Reps' primary duties against the illustrative factors set out in § 541.202(b)." 611 F.3d at 156. The court concluded that the record before it showed no genuine issue of fact on some specific factors in the regulation, including the authority to commit the employer on matters having significant financial impact or to formulate management policies or practices. The court further concluded that other activities evinced not discretion but simply the application of skill. Not only is the application of skill to established practices insufficient to demonstrate discretion, see 29 C.F.R. § 541.202(e), the Second Circuit determined that the "skills are exercised within severe limits imposed by" the employer. Novartis, 611 F.3d at 157. Finally, the court concluded that those matters truly within the discretion of the representatives, such as setting daily schedules, allocating budgets for promotional events and allocating samples, were too insignificant to warrant application of the exemption. By contrast, in Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir.2010), the Third Circuit reached an opposite result. The court took note of the plaintiff's own characterization of her independence in performing her job responsibilities. Specifically, the Smith plaintiff stated that she was allowed "to run the territory the way [she] wanted to," id. at 283 (quotation marks omitted), which the court characterized as an admission that she was "the manager of her own business," id. at 285. Notably, however, although the Third Circuit carefully limited its holding to "the specific facts developed in discovery" in the case before it, id. at 283 n. 1, the job responsibilities to which the plaintiff referred closely mirrored those described for the Novartis representatives. As the Third Circuit described those duties: 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.
1. With respect to case number 10-3855, Plaintiff Susan Schaefer-LaRose also alleges violations of corresponding New York state wage law, which provides outside sales and administrative exemptions that are analogous to those contained in the FLSA.
2. Indeed, this question is currently before the Supreme Court in another case arising out of the pharmaceutical industry. See Christopher v. SmithKline Beecham Corp., 635 F.3d 383 (9th Cir.2011), cert. granted, ___ U.S. ___, 132 S.Ct. 760, 181 L.Ed.2d 480 (2011).
3. We therefore do not reach the issues in the plaintiffs' cross-appeal in case numbers 11-1980 and 11-2131 concerning willfulness.
4. Record citations in cases 11-1980 and 11-2131 are introduced with the designation "Abbott R." and refer to the record as it existed in the district court. Record citations in case 10-3855 are introduced with the designation "Lilly R." and refer to the appellate docket court entries.
5. The plaintiffs in these two actions hold various titles and earn or earned varying salaries. Ms. Schaefer-LaRose, for instance, was a Senior Sales Representative, earning in excess of $100,000 for almost all of her tenure with Lilly. Other plaintiff representatives earned substantially less.
6. These encounters are termed "sales calls." Although that label is imprecise for these circumstances, we employ it for ease of reading. We do note that these calls were once referred to as "professional visitation," Lilly R.43-9 at 177 (Schaefer-LaRose dep. 185), but there is no material dispute about the content or purpose of the visits.
7. The records also demonstrate that the representatives were encouraged or instructed to provide the majority of the samples to the highest-prescribing physicians to obtain the best return on investment. See, e.g., Lilly R.43-17 at 28 (Schaefer-LaRose dep. 168); Lilly R.43-8 at 96 (Schaefer-LaRose dep. 174) (describing how a sales representative would have to manage an allotment of samples and explaining that "[i]f that means your highest prescribers get the majority of samples, the lowest prescribers get none, that is the way it is").
8. At any given time, a representative in a specialty field usually was responsible for a limited number of products. See Abbott R.150-3 at 13 (Giordano dep. 98) (describing her responsibilities as typically involving two or three products at a given time); Abbott R.150-2 at 45 (Benton dep. 223) (discussing incentive compensation for three of the four primary care products she was responsible for promoting in a given period); Lilly R.43-17 at 28-29 (Schaefer-LaRose dep. 168-69) (stating that she was responsible for four products during the last six months of her employment).
9. "Do we need to uncover their needs and understand what they're looking for in their specific practices . . ., absolutely, and that's why we were trained so well to ask specific questions that would evoke a specific response." Abbott R.150-3 at 14 (Giordano dep. 146-47); see also Abbott R.150-2 at 57 (Bodie dep. 173) (noting that she tailored her presentations upon learning "what the doctors like to see or what kind of questions they have"); id. at 67 (Boyer dep. 114-17) (describing decisions that he would have to make during the course of a call, including how he would change his pre-planned approach to discuss efficacy, for instance, if he learned that the doctor's main concern was, instead, side effects); Lilly R.43-15 at 21 (Schaefer-LaRose dep. 179) (acknowledging that the purpose of a pre-call plan was "to better understand the needs of the individual physician before you went in to talk to that person"); id. at 22-23 (Schaefer-LaRose dep. 181-82) (stating that sales representatives were trained to ask open-ended questions because "physicians would open up about their experiences and their expectations and their needs," and explaining that such answers would help the sales representatives "gain more information about their practice and their patients, and the placing of [the Lilly] product in the practice").
10. Ms. Schaefer-LaRose noted that Lilly had specific rules as to what constituted a call and that, if she only had a limited amount of time with a particular physician, she would be sure to provide "the name of the product, the dosage, the frequency and the indication" in order to receive credit for the call. See Lilly R.43-9 at 159-60 (Schaefer-LaRose dep. 130-31). However, she explained that, depending on the circumstances surrounding the call, she would focus her message on different factors, taking into consideration the physician's availability and mood, the product she was promoting, and how much time she had to make her pitch. See id. at 160-61 (Schaefer-LaRose dep. at 131-32).
11. Ms. Schaefer-LaRose described how she was "trained to ask for the business during every call." Lilly R.43-15 at 19 (Schaefer-LaRose dep. 177). This meant "ask[ing] the physician to commit to prescribe the product in the appropriate circumstance[s]," or "asking the physician to try ... the product with a patient who met the description of the patient that [she] had been told to set up on the first page of the detail piece." Id. Lilly trained its representatives to try to get a "chip" during each call, which Ms. Schaefer-LaRose described as a positive piece of information from the physician about Lilly's product. Id. at 23-24 (Schaefer-LaRose dep. 182-83). The representatives were taught to then use that piece of information in order to obtain a commitment from the physician to prescribe Lilly's pharmaceuticals.
12. See, e.g., Lilly R.43-8 at 108-09 (Schaefer-LaRose dep. 248-49) (explaining that the representatives served as "the primary contact between those physicians and Lilly"); Abbott R.150-3 at 28 (Jirak dep. 91) (noting that he "tried to develop business relationships with the doctors in order to get time with them" and that he would take care to ensure that his actions would not lead them to "have a negative opinion of people that work for Abbott"); Abbott R.150-2 at 85 (Brown dep. 108) ("[Y]ou had to understand where you were going, who you were dealing with and have enough business acumen to be able to present yourself, your company, your products in a way that would make you hopefully memorable in a positive fashion."); Abbott R.150-3 at 16 (Giordano dep. 180) (noting that, in looking at call histories, she would "identify where a doctor was in the selling cycle and then gear [her] presentation ... based on where they were in that continuum of buyin"); Abbott R.150-2 at 51 (Bodie dep. 60) (describing how she would review prior notes and focus her attention on the physician's prior concerns to "reinforce what we talked about or answer any questions that he had given me the last time"); Abbott R.146-4 at 8-9 (Guerrera dep. 85-86) (referencing "building a relationship" with a call-plan physician as a goal); Lilly R.43-15 at 21 (Schaefer-LaRose dep. 179) (explaining that a representative would use a post-call plan "to set up the next call based upon what you learned in the current call").
13. E.g., Abbott R.150-3 at 5 (Cheryl Fuller dep. 46); accord Abbott R.150-2 at 87 (Brown dep. 125) (describing a "sales call continuum," of which the prior work of other team members was a part). At any given time, representatives might be assigned between 30 and 200 or more physicians to call on, with varying frequencies. See, e.g., Abbott R.150-2 at 5 (Arri dep. 106); Abbott R.146-10 at 7 (Chao dep. 96); Lilly R.43-17 at 6 (Schaefer-LaRose dep. 70).
14. See Abbott R.146-2 at 18-19 (Rancourt dep. 80-81) (describing the call plan and modification process as well as the importance of a representative's judgment in setting a schedule); Abbott R.150-6 at 99 (Paul Fuller decl. 2) (stating that he spends fifty percent of his time visiting non-physician medical office staff and that, because Abbott provides no direction regarding the frequency of such visits, he "us[es] [his] personal knowledge of the territory" to set that schedule); Abbott R.150-7 at 31 (Miller decl. 2) (stating that he "receive[s] a call plan from Abbott" identifying "the suggested frequency" of visits to individual physicians, but that it "is not always an accurate reflection of [his] territory" and he "must use [his] own knowledge and experience" to modify the plan, add or drop physicians, etc.); id. at 26 (Hettenback decl. 3) (noting that he is authorized to modify the plan both before and after finalization, and that, after finalization, he "diverge[s] from the call plan about 10-15% of the time"); Abbott R.150-6 at 102 (Paul Fuller decl. 5) ("I can (and do) deviate from [the call plan] if I feel my sales efforts would be better concentrated elsewhere. Basically, I do what I think is right for the business."); Abbott R.146-10 at 8-9 (Chao dep. 97, 100) (describing a sales representative's own authority to see "extra doctors," although stating that he could not "subtract" physicians from the list); Lilly R.43-9 at 170 (Schaefer-LaRose dep. 152) (acknowledging that, at Lilly, if a particular sales representative was performing poorly, "[y]ou would change your behaviors immediately," to include "try[ing] to up your [call] frequency"). But see Abbott R.146-8 at 5-6 (Hurley dep. 105-06) (stating that she could be penalized for responding to a request for samples from a non-call-plan physician without approval from her manager first); Abbott R.146-4 at 8 (Guerrera dep. 85) (stating that she could meet with plan doctors only and could not "meet a [non-plan] nephrologist at, you know, at the mall and add them to [her] call plan").
15. E.g., Abbott R.150-3 at 7 (Cheryl Fuller dep. 82-85); see also Abbott R.150-2 at 51 (Bodie dep. 59-60) (discussing the physician-specific notes that could be accessed by different representatives to coordinate visits and messages); id. at 70 (Boyer dep. 154-57) (discussing a team-designed method of information-sharing); id. at 84 (Brown dep. 105) (stating that representatives "would be on the phone [with each other] all day talking about doctors"); Abbott R.150-3 at 13 (Giordano dep. 99) (stating that it would be "redundant" to review other representatives' old call notes because they "were also communicating with each other like daily, every other day, talking about what was taking place"); id. at 15 (Giordano dep. 172-73) (discussing the "business plan" for the team or "pod" and the method by which it was constructed); Lilly R.43-8 at 66 (Schaefer-LaRose dep. 49) (stating that representatives "were in near constant telephone contact" and "often spoke on the telephone during the evening hours to help and support each other"); Lilly R.43-9 at 176 (Schaefer-LaRose dep. 180) (explaining that post-call plans could be used to inform partners about "something very important that happened" or "[s]ome huge piece of information that needed to be followed up on").
16. Indeed, Ms. Schaefer-LaRose described herself as a "scientist," rather than a salesperson, because she was charged with "convey[ing] scientific information to physicians about how and why [Lilly's] product is beneficial to patients." Lilly R.43-9 at 177 (Schaefer-LaRose dep. 185).
17. In addition to Ms. Schaefer-LaRose, there are approximately 388 opt-in plaintiffs, as part of a conditionally certified collective action, all of whom share the same FLSA claims. The claims of the opt-in plaintiffs remain pending before the district court as the case has been stayed by the district court's November 12, 2010 order, pending this appeal.
18. The court provided no record citation for this fact.
19. The district court had jurisdiction over the FLSA claims under 29 U.S.C. § 216(b) and 28 U.S.C. § 1331. It had jurisdiction over the state law claims under 28 U.S.C. § 1367(a). We have jurisdiction under 28 U.S.C. § 1291.
As we have noted, these cases were resolved by the district courts in different ways, with one court ruling for the plaintiff class and against Abbott, and one court ruling against Ms. Schaefer-LaRose and for Lilly. We are obligated to view the facts of each case in the light most favorable to the party challenging summary judgment in each. We have no significant difficulty in applying that rule here because we conclude that the factual disputes in these records are insignificant and, therefore, are not material to the outcome of either case.
20. The parties address extensively the degree of deference owed to the Secretary's position. Most of this argument addresses the appropriate deference owed to the Secretary's interpretation of an ambiguous regulation. Cf. Christensen v. Harris Cnty., 529 U.S. 576, 588, 120 S.Ct. 1655, 146 L.Ed.2d 621 (2000) (declining to defer to an agency's interpretation, contained in an opinion letter, of an unambiguous regulation); Auer v. Robbins, 519 U.S. 452, 461-62, 117 S.Ct. 905, 137 L.Ed.2d 79 (1997) (deferring to an agency's interpretation of its own regulation stated in an amicus brief). Although this question might deserve significant attention if an interpretation of the regulations were in question, as it perhaps is with respect to the outside sales exemption, it does not apply here. In this case, we are simply tasked with the application of an unambiguous regulation to the particular facts.
21. The Secretary does not address this issue in her amicus brief. Instead, in considering the administrative exemption, she relies only on the ground that Ms. Schaefer-LaRose did not satisfy the discretion and independent judgment prong.
22. In Martin v. Cooper Electric Supply Co., 940 F.2d 896, 903 (3d Cir.1991), the Third Circuit applied the "administrative/ productive work dichotomy" under the former regulations to reach the conclusion that sales professionals at a wholesaler could not be classified as administrative employees. The only business of the wholesaler was sales. It neither produced its products nor provided services as its principal business activity. Accordingly, those responsible for the sales were engaged in the only production relevant to the employer's business.
The Department of Labor since has modified the regulations with the intent "to reduce the emphasis on" the dichotomy described in Martin. See Defining and Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and Computer Employees, 69 Fed.Reg. 22,122, 22,140 (Apr. 23, 2004) (quotation marks omitted). Although the distinction is not determinative unless an employee is engaged unequivocally in production, it remains "one analytical tool that should be used toward answering the ultimate question." Id. at 22,141 (internal quotation marks omitted).
23. We note in passing the plaintiffs' argument that the Second Circuit's decision in Reiseck v. Universal Communications of Miami, Inc., 591 F.3d 101 (2d Cir.2010), requires an opposite result. Reiseck concludes that an individual salesperson who is focused on individual sales does not qualify for the exemption. Its reasoning is not applicable to the particular jobs at issue here in this particular industry. Id. at 107. In Reiseck, the court considered the position of someone selling advertising space in a free magazine. The Second Circuit began by noting that the publisher was not operating one of the archetypal businesses envisioned by the FLSA, but that, by analogy to those archetypes, the employee in question was involved in routine individual sales. Specifically, the magazine's advertising space— the only revenue-generator the company had—was its "product," and the employee in question sold it. Id. at 106 (quotation marks omitted). The court then distinguished the employee's direct sales work with work that would encourage sales more generally. Here, the pharmaceutical company defendants produce actual pharmaceutical products, which the plaintiffs promote to physicians. Indeed, the plaintiffs have gone to great pains to explain that they do not sell to any individuals, although they engage in targeted promotion efforts. They emphasize that they are not credited with sales, even when data shows physicians they target begin using a product they promote with greater frequency. They receive bonuses based on consumer sales in their region without any of those sales being attributable to them. Although plaintiffs' efforts are targeted, simply analogizing them to sales is unconvincing. Not only are the circumstances of pharmaceutical work somewhat unusual, as far as sales and marketing go, but the plaintiffs strenuously distinguish their work from "sales" in the context of the outside sales exemption that we have declined to address. In sum, Reiseck does not provide an apt analogy to the present situation.
24. With respect to case number 10-3855, Ms. Schaefer-LaRose also argues that the district court erred in failing to apply the Second Circuit's opinion in In re Novartis Wage & Hour Litigation, 611 F.3d 141 (2d Cir.2010), to her New York state law claims.
With her motion to reconsider pending before the district court, Ms. Schaefer-LaRose supplemented the record, providing the court with a citation to the Second Circuit's opinion in Novartis, in which the court held that pharmaceutical sales representatives are not exempt under the FLSA. Yet, in doing so, she made no argument with respect to her state law claims, and we therefore conclude that this argument is forfeited. See Ocean Atl. Dev. Corp. v. Aurora Christian Sch., Inc., 322 F.3d 983, 1005 (7th Cir.2003) (noting that arguments not raised before the district court are forfeited).
We further note that, in its opinion, the Second Circuit explicitly acknowledged that neither party had challenged the district court's conclusion that there was no meaningful distinction between state and federal law. The Second Circuit accordingly treated the exemptions the same under both state law and the FLSA.
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