Some employees of pharmaceutical and biotechnology companies – particularly in research and development – see overtime-exempt classification as a badge of honor.  These employees believe that being paid a salary means that they are viewed as smart, trusted professionals performing important work.  Many of these individuals would never dream of asking for overtime, and as a result, many HR professionals and in-house counsel in the industry assume that they are exempt from having to worry about state or federal overtime laws. Unfortunately, however, an employee’s preference has no bearing on his or her entitlement to overtime.  And while many research employees, even at the entry level, do in fact meet the requirements for the “professional” or  “administrative” exemptions under the Fair Labor Standards Act (“FLSA”) and analogous state laws, some do not.

Let’s say that a pharmaceutical company has an employee who has a four-year college degree.  He took a couple of chemistry and biology classes, but he majored in political science.  He is now working in an entry-level research laboratory position.  He has become highly skilled at performing a particular type of assay, which he had experience doing in his undergraduate classes.  However, he is not yet proficient in analyzing the results himself; after he collects the data from each experiment, he gives it to his supervisor to review and interpret.  The supervisor also designates the specific compounds that he tests in his assay.  Is there a risk in treating him as exempt from overtime?

In this inaugural issue of SeyPharma, we review the requirements of the  professional and administrative exemptions, as well as provide strategies to avoid the most common pitfalls in applying these requirements to lab techs and other entry-level R&D personnel.

Understanding the “White Collar Exemptions”

Under the FLSA and many state laws, the default is that employees must be paid overtime for work in excess of forty hours per week.  Certain employees, however, may fall into statutory exemptions from the FLSA’s overtime requirements. One of the most common “white collar” exemptions used in the pharmaceutical industry is the “learned professional” exemption.  To qualify for the learned professional exemption, an employee generally must meet both a “salary” test and a “duties” test.  The salary basis test is complex, but in general it requires payment of a salary of at least $455 per week that does not vary based on the employee’s hours of work.  To meet the duties test, the employee’s primary duty, or most important job function, must require (1) “advanced knowledge” (2) in a “field of science or learning” (3) that is “customarily acquired by a prolonged course of specialized intellectual instruction.”

An employee performing a job that requires a Master’s degree or PhD will usually meet these duties requirements, and an employee who has less than a four-year college degree rarely will.  The tricky case is the one in the middle – a four-year degree alone may suffice, but typically only if it is in a field directly related to the work the employee is performing and is actually needed to perform the job.

Even if an employee does not meet the requirements for the professional exemption, he may qualify for the administrative exemption.  In order to meet the administrative “duties test”, the employee’s primary duty must (1) consist of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers, and (2) require him to exercise discretion and independent judgment with respect to matters of significance.

The first part of this test, which is sometimes referred to as the “production-administrative dichotomy,” requires that the employee’s job is “related to assisting with the running or servicing of the business,” as opposed to manufacturing or selling the company’s end products.  Applying this requirement can be complicated, but a true R&D employee within a company whose end-product is a drug or other treatment will often meet it.

The second criteria – the “independent judgment and discretion” prong – is perhaps the biggest “wild card” in determining whether a lab tech or other entry-level employee qualifies as exempt.  Very few cases exist analyzing this requirement as applied to junior-level chemists or biologists.  However, the regulations state that in any industry the use of skill, as opposed to true independent judgment, does not qualify.  In addition, where heavy regulation circumscribes the kind of choices an employee can make, it may make it more difficult to meet this prong of the exemption.

As a practical matter, when applying this requirement to entry-level research employees, employers should examine whether the individuals at issue are planning their own experiments or merely following instructions passed down from more senior scientists, and whether they are analyzing and interpreting results on their own or merely collecting data for others to analyze.  This often varies from lab to lab and from supervisor to supervisor, making the process of determining the exempt status of employees who do not have advanced degrees complex.

With that background, let’s return to our college graduate entry-level research laboratory employee.  While the ultimate decision as to whether he may properly be classified as exempt requires a close review of all of the facts regarding the duties of his job and the salary basis of his pay, there is risk in classifying him as exempt from overtime pay.

What Employers Can Do To Minimize Risk

Pharmaceutical and biotechnology companies should carefully review the job duties and educational qualifications of their overtime-exempt research positions, especially where the current occupants do not possess advanced degrees.  Human resources personnel should police low-level exempt job titles to ensure that they only give them to employees who truly meet their criteria, rather than giving them as a reward for great non-exempt work.

In addition, companies should make clear in their job descriptions and policies that they expect all exempt research employees to exercise independent judgment and discretion.  Even at junior levels, exempt employees’ performance evaluations should assess whether they exercise discretion and independent judgment.  For example, they should be reviewed on their ability to think critically about the experiments they are performing rather than their skill or ability to follow directions.  Several recent cases, including a case out of the Eleventh Circuit Court of Appeals, have confirmed that an employer’s reasonable expectations concerning the work must be taken into account in determining whether an employee’s job position is properly classified as exempt.

Employers should also remember that by evaluating on a case-by-case basis whether entry-level employees are exempt, they may be able to avoid class and collective certification if these employees file a lawsuit.  Even better, because of the wide variation in job duties of employees in these positions from lab to lab – and even from position to position within a single lab – plaintiff’s lawyers may view research employees as poor targets for class and collective actions.