A recent decision from the Third Circuit sheds light on how certain currently pending Fair Labor Standards Act ("FLSA") cases may be decided. In Smith v. Johnson & Johnson, the Third Circuit found that an outside pharmaceutical sales representative was exempt from the overtime requirement of the FLSA. The Court did not address the theory that because the employee was labeled an outside sales representative, her position fell within the FLSA's outside sales exemption. The outside sales exemption is not properly applied to those individuals who do promotional work only, and do not actually sell a product. To qualify for the outside sales employee exemption, the employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which the client or customer will pay. The employee here did not sell pharmaceuticals. Instead, she encouraged doctors to prescribe certain medication to their patients.
Ultimately, the Court found that a different FLSA exemption applied – the administrative exemption. For this exemption to be applicable, the employee must not only meet the salary requirement (a minimum of $455 per week), she must also have a primary duty directly related to the management or general business operations of the employer or the employer's customers. Additionally, the employee's primary duties must include the exercise of discretion and independent judgment with respect to matters of significance. Citing to the employee's daily tasks, the Court found that the employee was required to formulate and implement a "strategic plan" for sales which required her to exercise discretion and independent judgment. This plan "involved a high level of planning and foresight" and the plan "guided the execution of her remaining duties." The requirement that she prepare a strategic plan "satisfied the 'directly related to the management or general business operations of the employer' provision of the administrative employee exemption." The employee also met the "discretion and independent judgment" factor because, as the Court noted, she performed nearly all her duties with little supervision.
While this decision provides guidance on how courts may decide future FLSA cases involving other sales representatives, it should be noted that the Court footnoted its opinion, stating the decision was based on the facts of this case alone: "different facts, courts, including this Court, considering similar issues involving sales representatives for other pharmaceutical companies, or perhaps even for [the employer] J&J, might reach a different result." Nonetheless, the Smith decision helps employers evaluate whether the circumstances of their sales representatives' employment sufficiently support classifying them as exempt "administrative capacity" employees.