Schaefer-LaRose v. Eli Lilly & Co.

In the

United States Court of Appeals

For the Seventh Circuit

No. 10-3855

S USAN SCHAEFER-L AR OSE,

Plaintiff-Appellant,

v.

E LI L ILLY & C OMPANY,

Defendant-Appellee.

Appeal from the United States District Court

for the Southern District of Indiana, Indianapolis Division.

No. 07 cv 1133—Sarah Evans Barker, Judge.

Nos. 11-1980 & 11-2131

JAMES JIRAK, et al.,

Plaintiffs-Appellees,

Cross-Appellants,

v.

A BBOTT L ABORATORIES, INC.,

Defendant-Appellant,

Cross-Appellee.

Appeals from the United States District Court

for the Northern District of Illinois, Eastern Division.

No. 07 cv 3626—Ruben Castillo, Judge.

A RGUED O CTOBER 18, 2011—D ECIDED M AY 8, 2012

2 Nos. 10-3855, 11-1980 & 11-2131

Before E ASTERBROOK, Chief Judge, and R IPPLE and

K ANNE, Circuit Judges.

R IPPLE, Circuit Judge. These two cases, which we have

consolidated for opinion, involve the application of the

outside sales and administrative exemptions of the Fair

Labor Standards Act (“FLSA” or the “Act”), 29 U.S.C.

§§ 201-19, to pharmaceutical sales representatives em-

ployed by Eli Lilly & Co. (“Lilly”) and Abbott Laboratories,

Inc. (“Abbott”). The plaintiffs in each case claim that,

during their tenure as sales representatives with these

pharmaceutical companies, they were misclassified as

exempt employees and denied overtime pay, in violation

of the statute.1 The employers contend that both the

administrative exemption and the outside sales exemp-

tion, 29 U.S.C. § 213(a)(1), remove the sales representa-

tives from the overtime protections of the FLSA. The two

district courts in the present cases reached opposite

conclusions, each relying on cases decided by other

circuits.

Before this court, the Department of Labor (“DOL” or

the “Department”) has participated as amicus curiae in

case number 10-3855 and has asked us to consider its

arguments in our disposition of cases 11-1980 and 11-2131

as well. In the Department’s view, the plaintiffs are

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.

No. 10-3855, 11-1980 & 11-2131 3

neither administrative employees nor outside sales-

persons within the meaning of the statute and the De-

partment’s regulations.

After thorough consideration of the positions of

the parties, the view of the Department, the opinions of

our sister circuits and the facts in the records before us,

we conclude that, under the regulations of the Depart-

ment of Labor, the pharmaceutical sales representatives

are classified properly within the administrative exemp-

tion to the overtime requirements of the FLSA. Conse-

quently, we do not address the applicability of the out-

side sales exemption.2 We therefore affirm the judg-

ment of the district court in favor of Lilly in case num-

ber 10-3855 and reverse the judgment in favor of the

plaintiff class in cases 11-1980 and 11-2131 and remand

with instructions to enter judgment for Abbott.3

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, 132 S. Ct. 760 (Nov. 28, 2011) (No. 11-204).

3

We therefore do not reach the issues in the plaintiffs’

cross-appeal in case numbers 11-1980 and 11-2131 concerning

willfulness.

4 Nos. 10-3855, 11-1980 & 11-2131

I

BACKGROUND

A. Facts 4

The defendants, Lilly and Abbott, are global companies

headquartered in Indiana and Illinois, respectively. They

research, manufacture, market and sell pharmaceuticals.

The plaintiffs are current and former employees.

To market their pharmaceuticals, Lilly and Abbott

employ the plaintiffs and others as “sales representatives,”

although the term carries a unique meaning in the

context of the pharmaceutical industry.5 The primary

task of a sales representative is to call upon physicians

and to persuade them to prescribe the pharmaceutical

products of the representative’s employer. Because of

the restrictions on pharmaceutical sales under federal

law and under medical ethics requirements, the sales

representatives actually do not sell any pharmaceuticals

to physicians, nor do the physicians upon whom they

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.

No. 10-3855, 11-1980 & 11-2131 5

call actually buy any pharmaceuticals. Instead, in this

tightly regulated industry, Lilly, Abbott and their fellow

pharmaceutical companies sell their pharmaceuticals

to wholesalers, retailers and other facilities such as hospi-

tals and nursing homes that are licensed to dispense

the pharmaceuticals in accordance with a physician’s

written prescription to the end-consumer, the patient.

In meeting with the physicians, the objective of the repre-

sentatives is to increase the number of prescriptions

that those physicians write for their employer’s prod-

ucts.6 An increase in prescriptions written results in an

increase in prescriptions filled by end-users and, conse-

quently, an increase in demand for the drug by the dis-

pensing entities from which end-users actually obtain

the drug. Sales representatives constitute a substantial

part of the workforce of large-scale pharmaceutical manu-

facturers; Lilly and Abbott currently employ thousands

nationwide.

Representatives spend the majority of their time pre-

paring for, making and documenting sales calls, with

the consistent goal of obtaining meaningful access to

the physicians and of influencing their preference for the

company’s products. The calls usually take place in

target physicians’ offices and may, in some cases, last

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.

6 Nos. 10-3855, 11-1980 & 11-2131

less than a minute. Some physicians refuse to receive

representatives from the pharmaceutical industry in

their offices, and, in those cases, sales representatives

have to find other ways to reach their target. They

might attend hospital presentations or sponsor their

own educational events where they hope to encounter

and to engage difficult-to-reach physicians. Each repre-

sentative also has a discretionary budget, the significance

of which is disputed in the records, to use on meal or

speaker programs or other events designed to reach a

particular target. In addition, the sales representatives

are allocated limited amounts of free pharmaceutical

product samples for distribution to physician offices.

These samples are a tool that the employers provide to

aid the representatives in gaining access to prescribers,

but the degree of discretion the representatives exercise

in the distribution of these samples is a matter of some

dispute. See, e.g., Abbott R.150-2 at 11 (Arri dep. 232)

(“I know it’s definitely my responsibility to manage

my samples.”); Lilly R.43-9 at 175 (Schaefer-LaRose

dep. 175) (acknowledging that the decision as to how

many samples to leave “was something that you had to

decide when you were in the physician’s office based

on your assessment of the circumstances”).7

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

(continued...)

No. 10-3855, 11-1980 & 11-2131 7

Prior to visiting a particular physician, a representative

develops a pre-call plan. The details of these plans vary

widely. During the planning process, a representative

may review the physician’s prescribing practices, patient

population and similar information from data provided

by the pharmaceutical company or from notes taken by

the representative himself on previous visits. Using this

information, a representative evaluates whether prior

conversations with the physician have been effective

and determines whether any adjustments to his ap-

proach are necessary. The representative then identifies

a strategy for the call, which generally includes

identifying specific questions to use in order to engage

the physician in a conversation about the product and

selecting appropriate visual aids or literature to pique

the physician’s interest. See Lilly R.43-17 at 37 (Schaefer-

LaRose dep. 178) (describing the necessary planning

decisions and stating that “every representative under-

went [that process] before making a call”).

The representatives usually focus on a specific spe-

cialty—family practice, psychiatry or orthopaedics, for

instance. For a specific time frame, the company

would instruct them to approach the physicians in that

specialty and in their territory regarding a specific

7

(...continued)

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 Nos. 10-3855, 11-1980 & 11-2131

product or range of products.8 During a sales call, sales

representatives use whatever time a physician is willing

to give them to speak about one or more of their em-

ployer’s drugs, including the drug’s benefits, its effective-

ness, its appropriateness for a given population and

similar information. In communicating these facts, the

sales force relies on carefully honed messages that origi-

nate with the pharmaceutical companies in order to

ensure compliance with relevant regulations and pre-

approvals by the federal Food and Drug Administration

(“FDA”). Because of these same concerns, all materials

regarding products that are made available publicly are

created centrally. Although the sales representatives

select which of their employer’s materials would best

be used for a specific call, they have no authority to

generate anything original.

The representatives are expected to engage the physi-

cians in conversation whenever possible. Although the

parties have suggested that there is a serious dispute

about the degree to which the representatives are

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).

No. 10-3855, 11-1980 & 11-2131 9

“scripted,” it became clear at oral argument that any

disagreement is mostly semantic. Core messages must

be delivered precisely to ensure compliance with ap-

plicable laws and to represent accurately the science of

a particular product. Nevertheless, the calls do not

follow a predictable course. For example, sales repre-

sentatives are encouraged to employ sales techniques

that tailor the company’s core messages most success-

fully to each physician’s schedule, preferences and pa-

tient population. Sales representatives must be attentive

to the circumstances and responsive to a particular physi-

cian’s substantive areas of interest or concern.9 Accord-

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

(continued...)

10 Nos. 10-3855, 11-1980 & 11-2131

ingly, they are required to answer the questions posed

by the physicians in a manner consistent with the em-

ployer’s approved messages. Physicians might even ask

about various other products made by the respective

employer and, if the representative is competent to

answer—that is, if the particular drug is within his ex-

pertise—the physician’s question could redirect entirely

the conversation away from the initial plan. In sum, the

nature of the industry requires that the representa-

tives work within tightly controlled central mes-

sages; nevertheless, the representatives’ ability to be

responsive to physicians’ needs requires significant

discretion in the manner and mode of the delivery of that

message and in the details emphasized. These elements,

crucial to the success of the particular call, are also

unique to each call. See, e.g., Abbott R.150-2 at 84 (Brown

dep. 105) (“[E]very office is different, every provider

is different, every scenario is different, so as much as

we were taught cookie cutter, this is how you’re

supposed to do it, you had to modify it based on who-

ever it was you were in front of . . . .”).1 0

9

(...continued)

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

(continued...)

No. 10-3855, 11-1980 & 11-2131 11

At the conclusion of individual calls, sales representa-

tives attempt to secure business for their employers

from the physician. The records disclose that, once

a representative is satisfied with the content of a

particular call, he “earn[s] the right to close th[e] sale” by

asking the physician to commit verbally—although in

a completely non-binding way—to prescribe the com-

pany’s products where appropriate.1 1 Abbott R.150-6 at

10

(...continued)

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 sur-

rounding 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

(continued...)

12 Nos. 10-3855, 11-1980 & 11-2131

25 (Rogers dep. 65). Although some representatives

apparently do not ask for the commitment, or prefer to

ask with somewhat of a softer touch, the companies

instruct the representatives to ask for the physician’s

commitment with every visit.

Sales representatives attempt to develop continuing

relationships with the physicians to whom they are

assigned and to create an ongoing, positive impression of

themselves, their products and their employer. 1 2 In their

11

(...continued)

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] presenta-

tion . . . based on where they were in that continuum of buy-

in”); Abbott R.150-2 at 51 (Bodie dep. 60) (describing how she

would review prior notes and focus her attention on the physi-

(continued...)

No. 10-3855, 11-1980 & 11-2131 13

depositions, the representatives spoke about how “over

time” they learned a particular physician’s preferences

including the methods and types of information to

which he responded in a positive manner.1 3

Sales representatives generally structure their days

independently and work alone. There is some dispute

in the records about the degree of control exercised by

the employers over the identity of the physicians visited

and the frequency of those visits. It is clear, however,

that there is, at minimum, significant direction about

the number of visits that should be conducted over a

quarter. The employer identifies the physicians as high-

prescribing or low-prescribing with respect to the em-

ployer’s products and assigns a numerical or frequency

12

(...continued)

cian’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 Nos. 10-3855, 11-1980 & 11-2131

goal regarding visits to that physician by an individual

representative or by the team in a certain region. Using

this data, the representatives compose a work plan and

secure the approval of management. See, e.g., Lilly R.43-17

at 4-5 (Schaefer-LaRose dep. 67-68). The representatives

apparently retain some degree of flexibility to respond to

conditions in the field, that is, to increase or decrease

visits or reach out to additional physicians or others in

their offices based on their strategic perceptions.1 4 At

14

See Abbott R.146-2 at 18-19 (Rancourt dep. 80-81) (describing

the call plan and modification process as well as the im-

portance 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

(continued...)

No. 10-3855, 11-1980 & 11-2131 15

Abbott, for instance, representatives set a plan for

each quarter and are required to complete seventy-five

percent of the listed tasks. Abbott R.163-3 at 110 (Putnam

dep. 70); id. at 224 (Rancourt dep. 91). At Lilly, representa-

tives develop specific routing plans, which “ha[ve] to

absolutely be followed to meet the frequency require-

ments.” Lilly R.43-17 at 10 (Schaefer-LaRose dep. 76); id.

at 12-14 (Schaefer-LaRose dep. 94-96) (discussing

routing plans); see also Lilly R.43-8 at 106 (Schaefer-

LaRose dep. 228) (noting that she was expected to make

nine calls a day).

Representatives in a given territory, however, do work

collaboratively in a number of ways. They meet to

develop territory-wide plans (also subject to manage-

ment approval), coordinate physician messages, share

information, and determine an effective, non-repetitive

14

(...continued)

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 per-

forming poorly, “[y]ou would change your behaviors im-

mediately,” 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”).

16 Nos. 10-3855, 11-1980 & 11-2131

visit schedule with physicians.1 5 In fact, beginning in 1998,

Lilly established “coordinat[ion of] efforts with territory

partners in a team environment” as one of the overall

objectives for its representatives. See Lilly R.43-9 at 201-

02 (Schaefer-LaRose dep. 256-57). In keeping with

this objective, sales representatives often work with a

partner. Partners within a territory confer regarding

the development of routing plans, as well as how to

allocate funds for peer-to-peer programs. In addition,

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 commu-

nicating 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) (ex-

plaining 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”).

No. 10-3855, 11-1980 & 11-2131 17

representatives who run out of samples are able to

call their partners to see if they have any additional

samples to distribute. Representatives who are short on

discretionary funds to host an educational event might

suggest a partnership, such that some portion of the

food or facilities costs came from another representa-

tive’s allocation.

Except for occasional ride-alongs by a supervisor, the

sales representatives are without direct supervision

while doing their most significant task—meeting with

physicians. However, sales representatives do have

regular contact with supervisors through periodic check-

ins and in regular conference calls, meetings and training

sessions.

Sales representatives receive extensive training, both

substantive and skills-based. They are trained and tested

on diseases, product details and products manufactured

by their competitors. See Abbott R.150-3 at 23 (Jirak

dep. 53) (describing roughly three months of near-continu-

ous training at Abbott’s headquarters as “ex-

tremely thorough, very long”); Lilly R.43-9 at 156, 166-67

(Schaefer-LaRose dep. 123, 140-41) (describing the initial

classroom instruction and periodic follow-up training

sessions); id. at 161-64 (Schaefer-LaRose dep. 132-35)

(describing the process for learning disease states).1 6 They

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

(continued...)

18 Nos. 10-3855, 11-1980 & 11-2131

also receive significant “sales” training that teaches,

through role-play and various other tools, techniques for

persuading physicians and for “closing” the sale.

Sales representatives historically have been classified

throughout the pharmaceutical industry as exempt em-

ployees under the FLSA and related state statutes. At

both Lilly and Abbott, the representatives work for a

base salary plus incentive pay; the latter is based on

total sales in the representative’s territory. Although the

incentive pay provides a monetary reward for the repre-

sentatives, they do not receive direct “commissions” based

on physician commitments made to them or on prescrip-

tions simply written by the physicians; the companies

make incentive decisions based on prescriptions actually

filled and purchased. Prescriptions written but never

filled do not influence the incentive decision.

B. Procedural Histories

1. No. 10-3855

Susan Schaefer-LaRose originally filed this action on

November 14, 2006, in the Northern District of New

York. Lilly moved to transfer the case to the Southern

District of Indiana under 28 U.S.C. § 1404(a), and, after

transfer was granted, moved for summary judgment. The

district court granted Lilly’s motion for summary judg-

16

(...continued)

and why [Lilly’s] product is beneficial to patients.” Lilly R.43-9

at 177 (Schaefer-LaRose dep. 185).

No. 10-3855, 11-1980 & 11-2131 19

ment; it concluded that the position of pharmaceutical

sales representative was within both the outside sales

exemption and the administrative exemption to the FLSA.

Beginning with the outside sales exemption, the

district court took a pragmatic approach, emphasizing

the structure and realities of the pharmaceutical indus-

try. Specifically, the court acknowledged that “[o]nly

the nature of the heavily regulated pharmaceu-

tical industry prevented Ms. Schaefer-LaRose from going

beyond receiving non-binding commitments from the

physicians on whom she made calls in her sales territory

to consummating final sales to them.” Schaefer-LaRose v. Eli

Lilly & Co., 663 F. Supp. 2d 674, 686 (S.D. Ind. 2009) (em-

phasis added). The court pointed to the “undisputed

fact” that “Ms. Schaefer-LaRose was clearly hired as a

Lilly sales representative, not simply to educate and

inform physicians about Lilly pharmaceuticals, but to

generate sales of those products.” Id.

The district court rejected Ms. Schaefer-LaRose’s argu-

ment that her work was not within the outside sales

exemption because she actually did not consummate

sales, but rather engaged in promotion work which

resulted in sales made by a third party. The court distin-

guished Ms. Schaefer-LaRose’s work from traditional

promotion work, explaining that she “did not merely

‘grease the skids’ in preparing the way for a second wave

of Lilly employees who later would visit those same

physicians and close the actual sales.” Id. at 687. Rather,

“when her efforts succeeded later on in terms of the

issuance of a prescription by a physician to a patient

20 Nos. 10-3855, 11-1980 & 11-2131

who purchases the medication, Ms. Schaefer[-]LaRose

personally received salary benefits for those prescrip-

tions as part of her compensation package.” Id.

Taking note of the indicia-of-sales factors in the reg-

ulations, the court concluded that all of Ms. Schaefer-

LaRose’s ancillary duties, which included preparing

and reviewing reports, distributing drug samples to

physicians, and allocating funds for programs, were in

direct support of her sales efforts to secure commit-

ments from physicians to prescribe Lilly pharmaceuticals.

Additionally, the court noted that Ms. Schaefer-LaRose

was compensated, in large part, based upon the number

of prescriptions written within her territory. The court

therefore concluded that sales representatives indeed

make “sale[s]” within the meaning of section 3(k) of the

FLSA, 29 U.S.C. § 203(k).

The court then turned to whether, as a pharmaceutical

sales representative, Ms. Schaefer-LaRose qualified as an

exempt administrative employee. After setting forth the

three-pronged test of the regulation, the court focused

on the second prong: whether the employee engages in

office or non-manual work directly related to manage-

ment or general business operations. Once again

adopting a pragmatic approach, the court concluded

that Ms. Schaefer-LaRose’s marketing and promotion

work was clearly distinct from the company’s produc-

tion of pharmaceuticals, and, as such, satisfied the re-

quirement raised by the production/administration dis-

tinction described in 29 C.F.R. § 541.201(a). The court

then rejected Ms. Schaefer-LaRose’s argument that,

No. 10-3855, 11-1980 & 11-2131 21

because her work was focused on a limited group of

doctors, it was not directly related to the management

or general business operations of the company. The

court pointed out that “[t]he success of Lilly’s business

depends in significant part on whether consumers pur-

chase pharmaceuticals produced by Lilly,” and therefore

the success of its sales representatives is critical to Lilly’s

business. Schaefer-LaRose, 663 F. Supp. 2d at 690. The

court therefore concluded that, due to the nature of

the business, “the activities of each individual sales

representative have a substantial impact on Lilly’s

business operations and bottom line.” Id. at 691.

Having determined that Ms. Schaefer-LaRose satisfied

the second prong of the administrative employee test,

the court turned to the third prong of that exemp-

tion: whether the employee exercises discretion and

independent judgment with respect to matters of sig-

nificance. The court rejected Ms. Schaefer-LaRose’s char-

acterization of the record as “demonstrat[ing] that she

had very little latitude in her job, that she was rigorously

trained, closely monitored and supervised, and was

subject to strict oversight and control in the performance

of her duties.” Id. at 691-92 (internal quotation marks

omitted). In reaching its conclusion that Ms. Schaefer-

LaRose “exercised considerable discretion and independ-

ent judgment as part of her daily work for Lilly,” the

court noted that Ms. Schaefer-LaRose tailored each pre-

sentation to the specific physician, analyzed reports

to evaluate her success, decided which drugs and

how many to leave with each physician, and determined

the most effective allocation of the meals budget. Id. at 693-

22 Nos. 10-3855, 11-1980 & 11-2131

94. Finally, the court explained that this exercise of dis-

cretion clearly was aimed at increasing the number of

Lilly prescriptions written in her territory—“a matter

of considerable significance to Lilly to say the least.” Id.

at 694. Accordingly, the district court granted Lilly’s

motion for summary judgment.

Ms. Schaefer-LaRose sought reconsideration, which

was denied on September 30, 2010. A final judgment

was entered on November 12, 2010, under Federal Rule

of Civil Procedure 54(b).1 7

2. Nos. 11-1980 & 11-2131

James Jirak and Robert Pedersen brought this action

in the Northern District of Illinois, and the district court

conditionally certified a class. After 297 plaintiffs opted

in, the district court ruled that only 78 plaintiffs had

claims within the three-year limitations period.

Abbott filed a motion for summary judgment against

named plaintiffs Mr. Pedersen and Mr. Jirak, noting the

absence of a final class certification order. The plain-

tiffs cross-moved for summary judgment. The district

court granted the motion on liability for the plain-

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.

No. 10-3855, 11-1980 & 11-2131 23

tiffs. Jirak v. Abbott Labs., Inc., 716 F. Supp. 2d 740 (N.D.

Ill. 2010).

In analyzing the problem before it, the district court

relied heavily on an amicus brief filed by the DOL before

the Second Circuit in In re Novartis Wage & Hour Litiga-

tion, 611 F.3d 141 (2d Cir. 2010). In that brief, the

Secretary of Labor argued that pharmaceutical sales

representatives do not make “sale[s]” within the

meaning of section 3(k) of the FLSA, 29 U.S.C. § 203(k).

The Secretary noted that, although the work of the repre-

sentatives bears some indicia of sales, the representa-

tives neither sell nor take orders. Instead, “ ‘they provide

information to target physicians about [the company’s]

drugs with the goal of persuading the physicians to

prescribe those drugs to their patients.’ ” Jirak, 716 F. Supp.

2d at 745 (quoting the Secretary’s Novartis amicus

brief). Because the most that the representatives achieve

from a given “sales” call is “ ‘a non-binding commitment

to prescribe . . . when appropriate,’ they ‘do not meet

the regulation’s plain and unmistakable requirement

that their primary duty must be “’making sales.” ’ ” Id.

(quoting the Secretary’s Novartis amicus brief). The Secre-

tary viewed the representatives in Novartis as engaged

in non-exempt promotional work, designed to stimulate

sales generally or sales that would be consummated by

others.

Accepting the plaintiffs’ argument that the Secretary’s

view was owed deference under Auer v. Robbins, 519

U.S. 452 (1997), the court found the Secretary’s position

“both persuasive and consistent” with its own view of

24 Nos. 10-3855, 11-1980 & 11-2131

the regulation and agreed that the “sales” work done

by the representatives was described more accurately

as “promotion[]” work. Jirak, 716 F. Supp. 2d at 747.

The court explicitly noted its disagreement with the

decision of the district court in Schaefer-LaRose, 663

F. Supp. 2d 674. It rejected the view that the work of

the sales representatives “represented a special category

with regard to ‘making sales,’ ” and further noted

that courts must construe narrowly the exemptions to

include those “plainly and unmistakably” within the

statutory and regulatory framework. Jirak, 716 F. Supp. 2d

at 748 (quotation marks omitted).

The district court then turned to the administrative

exemption. It noted each of the regulatory requirements

for the exemption, and then turned first to the third

prong: whether the employees exercise discretion with

respect to matters of significance. The court found

that the employees principally applied sales skills to

Abbott’s established techniques and procedures rather

than exercising discretion. Although noting that they

h a d fle x ib ility to d eterm in e how to d eliv e r

Abbott’s message, they “were not ‘free from immediate

direction.’ ” 18 Id. at 750 (quoting 29 C.F.R. § 541.202(c)).

Again, the district court turned to the DOL’s Novartis

brief, which stated that the discretion exercised by the

representatives in that case was insufficient to warrant

the administrative exemption. Although not explicitly

stating that it was deferring to the agency, the court

18

The court provided no record citation for this fact.

No. 10-3855, 11-1980 & 11-2131 25

found its analysis “consistent with previous agency

decisions.” Id. at 751. Accordingly, the court entered

summary judgment on liability for the plaintiffs.

Prior to the damages trial, Abbott filed a “Motion

for Judgment as to Willfulness,” contending that any

FLSA classification error had not been shown to be

willful. Abbott R.208. The district court agreed. It found

that Abbott’s interpretation of the FLSA was reasonable

and that no evidence demonstrated that Abbott inten-

tionally had misclassified the employees to avoid

overtime liability. Because the statute of limitations for

non-willful violations of the FLSA is two, not three

years, see 29 U.S.C. § 255(a), the court’s order reduced

the number of eligible plaintiffs by nineteen. The parties

stipulated to damages in the amount of $3.5 million,

and judgment was entered for the remaining fifty-

seven eligible plaintiffs.

II

ANALYSIS

A. Standard of Review

We review a district court’s entry of summary judgment

de novo, taking the facts and all reasonable inferences

in favor of the nonmoving party.1 9 Musch v. Domtar Indus.,

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.

(continued...)

26 Nos. 10-3855, 11-1980 & 11-2131

Inc., 587 F.3d 857, 859 (7th Cir. 2009). The burden is on

the employer to establish that an employee is covered

by the exemption. Corning Glass Works v. Brennan, 417

U.S. 188, 196-97 (1974). As a remedial statute, the exemp-

tions are narrowly drawn against the employers, Johnson

v. Hix Wrecker Serv., Inc., 651 F.3d 658, 660 (7th Cir.

2011), and “limited to those establishments plainly and

unmistakably within their terms and spirit,” Arnold v.

Ben Kanowsky, Inc., 361 U.S. 388, 392 (1960). This

approach ensures that we remain faithful to the plain

wording of the statutory language as a whole and, conse-

quently, to the intent of Congress. Yi v. Sterling Collision

Ctrs., Inc., 480 F.3d 505, 508 (7th Cir. 2007).

B. The FLSA and Accompanying Department of

Labor Regulations

Under the FLSA, employees are entitled to overtime

pay (i.e., one and one-half times the regular rate) for

any hours worked in excess of forty hours per week,

19

(...continued)

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.

No. 10-3855, 11-1980 & 11-2131 27

unless they come within one of the various exemptions

set forth in the Act. 29 U.S.C. §§ 207, 213. Under the stat-

ute’s express delegation of rule-making authority, the

Secretary has issued, after notice-and-comment proce-

dures, detailed regulations that define each of the ex-

emptions in § 213(a)(1). See 29 U.S.C. § 213(a)(1) (providing

authority); Defining and Delimiting the Exemptions

for Executive, Administrative, Professional, Outside Sales

and Computer Employees, 69 Fed. Reg. 22,122, 22,124 (Apr.

23, 2004) (acknowledging that the regulations were

issued pursuant to statutory authority); see also Long

Island Care at Home, Ltd. v. Coke, 551 U.S. 158, 165-68

(2007) (explaining the statutory and regulatory scheme);

Haywood v. N. Am. Van Lines, Inc., 121 F.3d 1066, 1069 (7th

Cir. 1997) (discussing the regulations as having “the force

and effect of law” (quotation marks omitted)).

Among those exemptions is one that exempts from the

overtime requirement of § 207 “any employee employed in

a bona fide executive, administrative, or professional

capacity.” 29 U.S.C. § 213(a)(1). With regard to the adminis-

trative exemption, the Secretary has promulgated the

following regulations:

(a) The term “employee employed in a bona fide

administrative capacity” in section 13(a)(1) of the

Act shall mean any employee:

(1) Compensated on a salary or fee basis at

a rate of not less than $455 per week (or

$380 per week, if employed in American

Samoa by employers other than the Federal

Government), exclusive of board, lodging

or other facilities;

28 Nos. 10-3855, 11-1980 & 11-2131

(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 exer-

cise of discretion and independent judg-

ment with respect to matters of signifi-

cance.

29 C.F.R. § 541.200(a).

In applying this regulation,2 0 our evaluation of the

present FLSA claim, as in all such claims, requires a

thorough, fact-intensive analysis of the employee’s em-

ployment duties and responsibilities. See Roe-Midgett v.

CC Servs., Inc., 512 F.3d 865, 870 (7th Cir. 2008).

20

The parties address extensively the degree of deference

owed to the Secretary’s position. Most of this argument ad-

dresses the appropriate deference owed to the Secretary’s

interpretation of an ambiguous regulation. Cf. Christensen v.

Harris Cnty., 529 U.S. 576, 588 (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

(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.

No. 10-3855, 11-1980 & 11-2131 29

With respect to the first prong, the parties agree, and the

records are clear, that the sales representatives were

compensated on a salary basis that qualifies them for

the administrative employee exemption. Accordingly,

the two “duties” requirements set forth in the second

and third prong of the regulation are the focus of this

appeal. We now turn to an analysis of each.

1. Work “Directly Related” to “Management or Gen-

eral Business Operations”

The second prong of the test for the applicability of the

administrative exemption requires that the qualifying

employee’s “primary duty [must be] 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.” 29 C.F.R.

§ 541.200(a)(2). The regulations provide further guidance

with respect to this point:

(a) To qualify for the administrative exemption, an

employee’s primary duty must be the performance

of work directly related to the management or

general business operations of the employer or

the employer’s customers. The phrase “directly

related to the management or general business

operations” refers to the type of work performed

by the employee. To meet this requirement, an em-

ployee must perform work directly related to assisting

with the running or servicing of the business, as distin-

guished, for example, from working on a manufacturing

30 Nos. 10-3855, 11-1980 & 11-2131

production line or selling a product in a retail or service

establishment.

(b) Work directly related to management or

general business operations includes, but is not

limited to, work in functional areas such as tax;

finance; accounting; budgeting; auditing; insur-

ance; quality control; purchasing; procurement;

advertising; marketing; research; safety and health;

personnel management; human resources; em-

ployee benefits; labor relations; public relations,

government relations; computer network, internet

and database administration; legal and regulatory

compliance; and similar activities. Some of these

activities may be performed by employees who

also would qualify for another exemption.

(c) An employee may qualify for the administrative

exemption if the employee’s primary duty is the

performance of work directly related to the man-

agement or general business operations of the

employer’s customers. Thus, for example, employ-

ees acting as advisers or consultants to their em-

ployer’s clients or customers (as tax experts or

financial consultants, for example) may be exempt.

Id. § 541.201 (emphasis added).

The plaintiffs submit that, as sales representatives, their

day-to-day responsibilities do not include work that

would constitute “running or servicing . . . the business”

No. 10-3855, 11-1980 & 11-2131 31

within the meaning of 29 C.F.R. § 541.201(a).2 1 In their

view, the work that they perform for Lilly and Abbott,

promotional and sales-like work focused on a limited,

select group of physicians, does not qualify for the ad-

ministrative exemption. The plaintiffs elaborate on

this argument by contending that the exemption was

designed for “higher level employees” whose work is

targeted at sales, promotional and marketing policies of

the company overall. Schaefer-LaRose Br. 47; accord

Abbott Appellees’/Cross-Appellants’ Br. 72. Finally,

the plaintiffs argue that cases that have applied the ex-

emption in other courts have involved employees who

possessed greater authority with respect to strategic

design, proposal writing, supervision or similar sig-

nificant responsibilities.

We cannot accept the plaintiffs’ view. We begin with

the language of the regulations. Specifically, the regula-

tions distinguish between the type of work that involves

“the running or servicing of the business,” and work

such as laboring “on a manufacturing production line

or selling a product in a retail or service establishment.”

29 C.F.R. § 541.201(a). That is, when an employee is

engaged in the core function of a business, his or her

task is not properly categorized as administrative. See

Haywood, 121 F.3d at 1072 (quoting Martin v. Cooper Electric

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.

32 Nos. 10-3855, 11-1980 & 11-2131

Supply Co., 940 F.2d 896, 904-05 (3d Cir. 1991), for the

proposition that “ ‘[s]ervicing’ a business within the

meaning of [the former regulation] denotes employment

activity ancillary to an employer’s principal production

activity”). As the district court in Schaefer-LaRose noted,

the core function of the drug makers here is the develop-

ment and production of pharmaceutical products. The

plaintiffs’ work supports that function, but is distinct

from it.22

Furthermore, in the preamble to the current regula-

tions, the Department of Labor reaffirms the view it has

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).

No. 10-3855, 11-1980 & 11-2131 33

held for more than sixty years that “the administrative

operations of the business include the work of employees

servicing the business, such as, for example, advising

the management, planning, negotiating, representing the

company, purchasing, promoting sales, and business

research and control.” 69 Fed. Reg. at 22,138 (emphasis

added) (internal quotation marks omitted); see also id.

(noting that “exempt administrative work includes not

only those who participate in the formulation of manage-

ment policies or in the operation of the business as a

whole, but it also includes a wide variety of persons

who either carry out major assignments in conducting

the operations of the business, or whose work affects

business operations to a substantial degree, even though

their assignments are tasks related to the operation of a

particular segment of the business” (internal quotation

marks omitted)). The current regulations themselves

provide an illustrative list of “functional areas” or depart-

ments from which employees frequently qualify for

the administrative exemption; that list includes such

areas as advertising, marketing and public relations.

29 C.F.R. § 541.201(b). Although none is a perfect de-

scription of the work of the representatives here,

they are sufficiently similar to suggest that the repre-

sentatives’ work is directly related to the general

business operations of the pharmaceutical companies.2 3

23

We note in passing the plaintiffs’ argument that the

Second Circuit’s decision in Reisick v. Universal Communications

of Miami, Inc., 591 F.3d 101 (2d Cir. 2010), requires an opposite

(continued...)

34 Nos. 10-3855, 11-1980 & 11-2131

23

(...continued)

result. Reisick 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 Reisick, 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 ad-

vertising 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 distin-

guished the employee’s direct sales work with work

that would encourage sales more generally. Here, the pharma-

ceutical 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 fre-

quency. 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.

(continued...)

No. 10-3855, 11-1980 & 11-2131 35

The representatives here are the principal ongoing rep-

resentatives of the company to the professional commu-

nity that is in a unique position to make, or deny, a viable

market for the company’s product. They do not make

individual sales of medications, but ensure, on a con-

tinuing basis, that the medical community is fully

aware of the potential of the company’s pharmaceutical

products and that the same community is confident that

the company’s products will be effective tools in the

practical setting of a medical practice. Moreover, the

representatives are one of the principal, and perhaps

the main, conduit by which physicians provide

meaningful feedback to the company on the actual ef-

fectiveness, and limitations, of the product.

Our cases further support this result. In Haywood v.

North American Van Lines, Inc., 121 F.3d 1066 (7th Cir.

1997), we considered the claim for overtime by a

customer service representative for a moving company.

The plaintiff was responsible for settling customer com-

plaints “to ensure quality service” and “to prevent the

customer’s dissatisfaction with some aspect of his move

from escalating into litigation.” Id. at 1068. In this role,

she served as the face of the company to claimants

and, sometimes, their attorneys. In concluding that she

satisfied the “directly related” prong of the administra-

tive exemption, we noted that her tasks, including

23

(...continued)

In sum, Reisick does not provide an apt analogy to the present

situation.

36 Nos. 10-3855, 11-1980 & 11-2131

serving as the “sole contact” with customers and

“represent[ing] the[] employer,” were among “the types

of classic administrative functions” contemplated by the

regulation. Id. at 1072. We similarly concluded that her

work was clearly of substantial importance to the

business, in part because her role was to protect the

customer base by keeping customers “happy” and to

minimize possible litigation exposure that could result

from dissatisfied customers. Id.

Similarly, in Roe-Midgett v. CC Services, Inc., 512 F.3d

865 (7th Cir. 2008), we held that work performed by

automobile damage appraisers satisfied the “directly

related” prong, even when their duties did not

include making pivotal determinations of coverage or

liability. In Roe-Midgett, the employer provided, under

contract, claims processing services for liability insurers.

The employees in question spent most of their time in-

vestigating automobile accidents in the field, inter-

viewing witnesses, physically inspecting damage and

estimating repair costs using appropriate software. If

the appropriate authorities within the company deter-

mined that liability had been established and cov-

erage approved, the employees were empowered to

settle lower-end claims consistent with their estimates.

In reaching our conclusion that they were part of the

employer’s general business operations, we noted that

the plaintiff damage appraisers operated with minimal

oversight in settling more than half of all claims that

the employer processed. We found significant that the

appraisers were the “ ‘face’ ” of the employer to third

parties, specifically, insurance claimants and mechanics;

No. 10-3855, 11-1980 & 11-2131 37

furthermore, their “front line[]” tasks were more properly

characterized as administrative as opposed to that of

a “postindustrial equivalent of production workers.”

Id. at 871-72.

We also find support in a decision from our colleagues

in the First Circuit, Reich v. John Alden Life Insurance Co.,

126 F.3d 1 (1st Cir. 1997). In John Alden, the First

Circuit evaluated a claim by marketing representatives

who claimed that John Alden had misclassified them

as exempt and denied them overtime in violation of

the FLSA. The marketing representatives did not sell

insurance products to end-consumers; instead, they

managed relationships with a list of independent field

agents who worked directly with customers seeking

insurance. The field agents, who were not employed

by John Alden, would rely on the information provided

by the marketing representatives in preparing insurance

proposals and in recommending insurance products to

consumers. Those field agents typically recommended a

range of products, including both those offered by

John Alden and by its competitors. Each representative

maintained his own “deck” of agents, usually 500-600,

and was responsible for “continually cull[ing] [his] deck[]

to maintain an active agent base.” Id. at 3-4 (quota-

tion marks omitted). The marketing representatives

did not sell insurance products to the agents or to the

customers; instead, they encouraged the use of John

Alden’s products by rigorously maintaining contact with

a critical middleman in the chain to the customer. The

First Circuit, drawing on the Third Circuit’s decision

in Martin v. Cooper Electric Supply Co., 940 F.2d 896 (3d

38 Nos. 10-3855, 11-1980 & 11-2131

Cir. 1991), held that the marketing representatives were

performing administrative work. Specifically, the court

concluded that they were engaged in “ ‘activit[ies] ancillary

to’ ” the employer’s principal function. John Alden, 126

F.3d at 10 (emphasis in original); see also id. (agreeing

with the district court’s conclusion that “the day-to-day

activities of marketing representatives are more in the

nature of ‘representing the company’ and ‘promoting

sales’ of John Alden products, two examples of exempt

administrative work provided by” the regulations then

in effect). The court also acknowledged that the repre-

sentatives played no meaningful role in negotiation.

Although they recommended “appropriate combina-

tion[s]” of John Alden products, they did not price them

or approve ultimate applications for coverage. Id. at 4.

The parallels between the present case and Haywood, Roe-

Midgett and John Alden convince us that the work done

by the pharmaceutical sales representatives properly

is characterized as administrative. The representatives

before us are the public face of their employer to the

most important decision-maker regarding use of their

companies’ products, the prescribing physicians. The

representatives neither produce the employers’ products

nor generate specific sales, but service the production

and sales aspects of the business by communicating

the employers’ message to physicians. The goal of their

work is to increase market share indirectly or, stated

differently, to promote sales. To the maximum extent

possible, their work is based on maintaining continuous

and regular contact with the physicians to whom they

are assigned, anticipating their objections and concerns

No. 10-3855, 11-1980 & 11-2131 39

and addressing them on behalf of their employers.

We therefore conclude that the sales representatives’

primary duty is the performance of work directly

related to the general business operations of the

employers, which satisfies the second prong of the ad-

ministrative exemption.

2. Primary Duty Includes the Exercise of Discretion

and Independent Judgment

The third prong of the administrative exemption

requires that the employee’s “primary duty include[] the

exercise of discretion and independent judgment with

respect to matters of significance.” 29 C.F.R. § 541.200(a)(3).

Again, the regulations provide substantial further detail:

(a) To qualify for the administrative exemption,

an employee’s primary duty must include the

exercise of discretion and independent judgment

with respect to matters of significance. In general,

the exercise of discretion and independent judg-

ment involves the comparison and the evaluation

of possible courses of conduct, and acting or

making a decision after the various possibilities

have been considered. The term “matters of sig-

nificance” refers to the level of importance

or consequence of the work performed.

(b) The phrase “discretion and independent judg-

ment” must be applied in the light of all

the facts involved in the particular employment

situation in which the question arises. Factors to

40 Nos. 10-3855, 11-1980 & 11-2131

consider when determining whether an employee

exercises discretion and independent judgment

with respect to matters of significance include, but

are not limited to: whether the employee has

authority to formulate, affect, interpret, or imple-

ment management policies or operating practices;

whether the employee carries out major assign-

ments in conducting the operations of the

business; whether the employee performs work

that affects business operations to a substantial

degree, even if the employee’s assignments are

related to operation of a particular segment of

the business; whether the employee has authority

to commit the employer in matters that have

significant financial impact; whether the em-

ployee has authority to waive or deviate from

established policies and procedures without

prior approval; whether the employee has author-

ity to negotiate and bind the company on signifi-

cant matters; whether the employee provides

consultation or expert advice to management;

whether the employee is involved in planning

long- or short-term business objectives; whether

the employee investigates and resolves matters

of significance on behalf of management; and

whether the employee represents the company in

handling complaints, arbitrating disputes or

resolving grievances.

(c) The exercise of discretion and independent

judgment implies that the employee has authority

to make an independent choice, free from immedi-

No. 10-3855, 11-1980 & 11-2131 41

ate direction or supervision. However, employees

can exercise discretion and independent judg-

ment even if their decisions or recommendations

are reviewed at a higher level. Thus, the term

“discretion and independent judgment” does not

require that the decisions made by an employee

have a finality that goes with unlimited authority

and a complete absence of review. The decisions

made as a result of the exercise of discretion

and independent judgment may consist of recom-

mendations for action rather than the actual

taking of action. The fact that an employee’s deci-

sion may be subject to review and that upon occa-

sion the decisions are revised or reversed after

review does not mean that the employee is not

exercising discretion and independent judgment.

For example, the policies formulated by the

credit manager of a large corporation may be

subject to review by higher company officials who

may approve or disapprove these policies. The

management consultant who has made a study

of the operations of a business and who has

drawn a proposed change in organization may

have the plan reviewed or revised by superiors

before it is submitted to the client.

(d) An employer’s volume of business may make

it necessary to employ a number of employees to

perform the same or similar work. The fact that

many employees perform identical work or

work of the same relative importance does not

mean that the work of each such employee does

42 Nos. 10-3855, 11-1980 & 11-2131

not involve the exercise of discretion and inde-

pendent judgment with respect to matters of

significance.

(e) The exercise of discretion and independent

judgment must be more than the use of skill in

applying well-established techniques, procedures

or specific standards described in manuals or

other sources. The exercise of discretion and

independent judgment also does not include

clerical or secretarial work, recording or tabulating

data, or performing other mechanical, repetitive,

recurrent or routine work. An employee who

simply tabulates data is not exempt, even if

labeled as a “statistician.”

(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 mes-

senger 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 equip-

ment does not exercise discretion and indep-

endent judgment with respect to matters of signifi-

cance merely because improper performance of

the employee’s duties may cause serious financial

loss to the employer.

Id. § 541.202 (internal citation omitted).

No. 10-3855, 11-1980 & 11-2131 43

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 con-

texts, 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 physi-

cians and managing their limited discretionary budgets.

Their primary argument, however, focuses on the discre-

tion 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, how-

ever, 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,

44 Nos. 10-3855, 11-1980 & 11-2131

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 discre-

tion, see 29 C.F.R. § 541.202(e), the Second Circuit deter-

mined 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 promo-

tional events and allocating samples, were too insignif-

icant 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

No. 10-3855, 11-1980 & 11-2131 45

responsibilities to which the plaintiff referred closely

mirrored those described for the Novartis representa-

tives. 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, how-

ever, 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.

46 Nos. 10-3855, 11-1980 & 11-2131

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 “com-

mitment” 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 ac-

companied 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.” 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

No. 10-3855, 11-1980 & 11-2131 47

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.

593 F.3d at 282-83 (alteration in original) (citation omitted).

Emphasizing the Third Circuit’s consideration of the

plaintiff’s deposition testimony, the plaintiffs here, sup-

ported by the Secretary, contend that the decisions of

the Second and Third Circuits are not in conflict. Such a

view simply distracts from the very real disagreement

between those circuits. It is true that the Smith case in-

cluded damaging deposition admissions by the plain-

tiff: She characterized her job as the manager of her

own business. Nevertheless, the court’s ultimate analytical

focus was, quite properly, on the nature of her day-to-

day duties, duties strikingly similar to those of the plain-

48 Nos. 10-3855, 11-1980 & 11-2131

tiffs in Novartis and to the plaintiffs in the cases now

before us. It is those day-to-day duties on which a

proper analysis under the FLSA rests, not merely the

parties’ characterizations of those duties as involving

discretion or not. See Roe-Midgett, 512 F.3d at 870.

Our examination of the records in these cases convinces

us that the representatives were required to exercise a

significant measure of discretion and independent judg-

ment, despite the constraints placed on them, and

indeed on all representatives of the pharmaceutical

industry, by the regulatory environment in which they

must live. See Kennedy v. Commonwealth Edison Co., 410

F.3d 365, 374-75 (7th Cir. 2005) (noting that the presence

of strict regulatory limits channeling employee discre-

tion did not prevent exercise of independent judgment).

Indeed, despite these constraints, it is in the core

function of the representatives’ duties, the physician

office visits, that we see the most important exercise of

discretion and professional judgment on their part. Al-

though the regulatory constraints of the industry

dictate that the representatives must deliver the pharma-

ceutical companies’ messages with precision, the rep-

resentatives nevertheless are sent into physicians’ offices

with minimal supervision to engage in conversation

with the prescribing physicians who, as a practical

matter, are in the most direct position to determine

whether their companies’ products have a viable mar-

ket. In speaking to individual physicians, the representa-

tives must tailor their messages to respond to the cir-

cumstances, whether those be the time or attention con-

straints from the physician or the concerns and objec-

No. 10-3855, 11-1980 & 11-2131 49

tions that are voiced during a particular or previous

visit. See supra note 9 (quoting the representatives’ own

descriptions of their physician interactions). Indeed,

although the companies gave the representatives

precise wording and materials, they certainly did not

treat the representatives as simple mouthpieces, re-

citing scripts. The records show that, although most rep-

resentatives had no medical background, the companies

trained them extensively in disease processes, their own

assigned products and products manufactured by competi-

tors; indeed, they were tested in their substantive knowl-

edge. The level of attention given to substantive educa-

tion demonstrates that the company viewed these in-

dividuals as employees needing a solid understanding

of the message that they were delivering if they were to

fulfill their roles as the company’s representative to

the community of practicing physicians. A significant

amount of discretion is no doubt required to determine

when the physician’s inquiry is sufficiently nuanced

to require a response from a more knowledgeable in-

dividual than the representative himself. The representa-

tive who is unable to tailor the conversation to the

time and circumstances, or to engage the physician in

an intelligent conversation, is understandably not an

effective representative to the professional community

whose estimation of the company is key to its success.

Beyond these physician interactions, which we con-

sider to be the critical function of the job and the place

in which discretion is most evident, the representatives’

other duties related to the actual call on the physi-

cian also manifest a substantial measure of judgment.

50 Nos. 10-3855, 11-1980 & 11-2131

Although representatives are given specific call plans

identifying the physicians to be visited and the degree

of frequency or priority category for each physician,

several representatives testified that they apply a

measure of strategic analysis to their work, choosing to

see physicians not on their call plans or non-physicians

who may influence prescribing patterns. See supra note

14 (describing discretion applied to call plans). They

work collaboratively with one another, proposing com-

prehensive visit plans for the territories and checking

in regularly by phone to keep each other abreast of devel-

opments in particular visits with physicians. Representa-

tives also spend the vast majority of their time entirely

unsupervised. Although they keep extensive records,

through which management can and does monitor

their progress, neither the fact that management

reviews their work nor that they are required to keep

such records detracts from the discretion they exercise

in the core of their workday. See 29 C.F.R. § 541.202(c)

(regarding review by supervisors); Piscione v. Ernst &

Young, L.L.P., 171 F.3d 527, 538 (7th Cir. 1999) (“Just

because an employee may spend a significant portion of

his time engaged in ministerial or routine tasks does

not necessarily prevent the application of the admin-

istrative exemption.”).

As the Second Circuit noted in Novartis, there are

a number of tasks listed in the regulations as “[f]actors to

consider” in determining whether an employee exer-

cises discretion that are clearly not present in this case.

See 29 C.F.R. § 541.202(b). We previously have acknowl-

edged, however, that the nature of a large, modern busi-

No. 10-3855, 11-1980 & 11-2131 51

ness does not permit any one employee to exercise all

of the functions listed in these general regulations. See

Verkuilen v. MediaBank, LLC, 646 F.3d 979, 982-83 (7th

Cir. 2011) (“It is true that the regulation, only a few provi-

sions of which we have quoted (it goes on and on), lists

a number of ‘administrative’ functions that the plaintiff

did not perform, such as negotiating contracts with

MediaBank’s customers. But below the highest executive

level a modern business is a congeries of specialists.”

(emphasis in original)). The ultimate question is not

whether the plaintiff did all, or any, of the specific

tasks listed in § 541.202(b); the list identifies itself as

exemplary and non-exhaustive.

Indeed, in the preamble to the current regulations, after

setting forth the factors now listed in § 541.202(b), the

Secretary continues:

Other factors which federal courts have found

relevant in assessing whether an employee exer-

cises discretion and independent judgment

include the employee’s freedom from direct supervi-

sion, personnel responsibilities, troubleshooting

or problem-solving activities on behalf of manage-

ment, use of personalized communication techniques,

authority to handle atypical or unusual situations,

authority to set budgets, responsibility for assessing

customer needs, primary contact to public or customers

on behalf of the employer, the duty to anticipate compet-

itive products or services and distinguish them from

competitor’s products or services, advertising or

promotion work, and coordination of departments,

52 Nos. 10-3855, 11-1980 & 11-2131

requirements, or other activities for or on behalf of

employer or employer’s clients or customers.

69 Fed. Reg. at 22,144 (emphasis added). Although

certain of these specific factors clearly apply to the

present case, the most important point is that this

passage makes clear that the determination of discretion

is a circumstance-specific one that will look different

from industry to industry and position to position. This

list of factors is not a checklist; it is a guide. The particular

discretion exercised by the representatives before us is

within the range of cases in which the exemption has

been applied. See, e.g., Verkuilen, 646 F.3d at 982 (holding

that an account manager at a software company who

“[i]dentif[ied] customers’ needs, translat[ed] them into

specifications to be implemented by the developers, [and]

assist[ed] the customers in implementing the solutions”

qualified for the administrative exemption); Piscione,

171 F.3d at 535-36 (concluding that a human resources

consultant exercised discretion in his duties by, among

other things, “improv[ing] client services” and being

“responsible for several clients”); John Alden, 126 F.3d at

13 (finding sufficient discretion where “the marketing

representatives rely on their own knowledge of an

agent’s business to help tailor proposals for the agent’s

end-customers” and are “able to anticipate the

competing products that the agent’s customers might be

considering, and distinguish John Alden’s offerings

from those of competitors”).

Finally, the plaintiffs and the Secretary briefly contend

that the work of the representatives principally involves

No. 10-3855, 11-1980 & 11-2131 53

the application of skill, rather than judgment. Although

they are correct that the regulations draw this distinc-

tion and caution that skill is insufficient to warrant

the exemption, skill and judgment are not mutually

exclusive. The records clearly demonstrate that the repre-

sentatives receive extensive skills training, particularly

on sales techniques. They most certainly employ this

skill, and, indeed, many others in the course of their

daily duties. Nevertheless, applying these skills entails

a great deal of judgment. The job requires far more

than “applying well-established techniques, proce-

dures or specific standards described in manuals.” 29

C.F.R. § 541.202(e). It does not involve simple “clerical or

secretarial work, recording or tabulating data, or perform-

ing other mechanical, repetitive, recurrent or routine

work.” Id.

Conclusion

The pharmaceutical sales representatives employed

by Abbott and Lilly in these cases are properly character-

ized as exempt administrative workers. In case number 10-

3855, we therefore affirm the judgment of the district

court.24 In cases 11-1980 and 11-2131, we reverse the

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

(continued...)

54 Nos. 10-3855, 11-1980 & 11-2131

judgment in favor of the plaintiff class, and we direct

the court to enter judgment in favor of Abbott.

No. 10-3855, A FFIRMED;

Nos. 11-1980 and 11-2131, R EVERSED and R EMANDED

with INSTRUCTIONS

24

(...continued)

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 for-

feited. 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.

5-8-12