Opinion ID: 150047
Heading Depth: 2
Heading Rank: 3

Heading: The Administrative Employee Exemption

Text: The Secretary's regulations interpreting the FLSA exemption for any employee employed in a bona fide ... administrative... capacity, 29 U.S.C. § 213(a)(1), establish three criteria that must be met for an employee to fit within that category. To be such an administrative employee, (1) the employee must earn at least $455 a week, (2) his 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, and (3) his primary duty must include [ ] the exercise of discretion and independent judgment with respect to matters of significance, 29 C.F.R. § 541.200(a); see, e.g., id. § 541.201 (elaborating on the second criterion); id. § 541.202 (elaborating on the third criterion). For purposes of this appeal, the relevant issue is whether Novartis has adduced sufficient evidence to permit a rational juror to infer that the Reps meet the third criterion. With respect to the requirement that the employee's primary duty include the exercise of discretion and independent judgment with respect to matters of significance, the regulations provide, in relevant part, as follows: In general, the exercise of discretion and independent judgment involves the comparison and the evaluation of possible courses of conduct, and acting or making a decision after the various possibilities have been considered. The term matters of significance refers to the level of importance or consequence of the work performed. (b) The phrase discretion and independent judgment must be applied in the light of all the facts involved in the particular employment situation in which the question arises. Factors to 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 implement management policies or operating practices; whether the employee carries out major assignments 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 employee has authority to waive or deviate from established policies and procedures without prior approval; whether the employee has authority to negotiate and bind the company on significant 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. .... (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.... Id. § 541.202(a), (b), and (e). On appeal, the Reps contend that they do low-level, discretionless marketing work, strictly controlled by Novartis, and that their duties and authority do not satisfy the requirements for applicability of the administrative employee exemption. (Plaintiffs' brief on appeal at 40.) Novartis, in contending that the Reps exercise discretion and independent judgment, argues that the Reps, for example, must determine how best to develop a rapport with a physician and develop strategies to engage physicians in an interactive dialogue to draw out their patient concerns, treatment styles and predilections; must be able to react to expressed physician concerns by emphasizing particular clinical findings regarding the efficacy and safety of NPC's drugs for specific patient types; must determine when and how to deliver the [Novartis-determined core] message, taking into consideration, e.g., the prior call history with each physician, the physician's time constraints, expressed concerns, prescription-writing tendencies and patient population; and must determine how best to close each call by evaluating whether sufficient groundwork has been laid to seek the physician's commitment on that call to write prescriptions. (Novartis brief on appeal at 50-51.) The Secretary points out that the regulations make clear that the requirement for authority to exercise ... discretion and independent judgment means more than simply the need to use skill in applying well-established techniques or procedures prescribed by the employer, see 29 C.F.R. § 541.202(e). The Secretary takes the position that for the administrative exemption to apply to the Reps, the regulations require a showing of a greater degree of discretion, and more authority to use independent judgment in matters of significance, than Novartis allows the Reps. Again we find it appropriate to defer to the Secretary's interpretation. Comparing the record as to the Reps' primary duties against the illustrative factors set out in § 541.202(b), for example, we see no evidence in the record that the Reps have any authority to formulate, affect, interpret, or implement Novartis's management policies or its operating practices, or that they are involved in planning Novartis's long-term or short-term business objectives, or that they carry out major assignments in conducting the operations of Novartis's business, or that they have any authority to commit Novartis in matters that have significant financial impact. Although Novartis argues that the Reps do commit Novartis financially when they enter into contracts with hotels, restaurants, and other venues for promotional events, which may cost NPC thousands of dollars (Novartis brief on appeal at 3-4), the record reveals that the Reps have been given budgets for such events by the Novartis managers and that the Reps have no discretion to exceed those budgets. Nor have we been pointed to any evidence that the Reps have authority to negotiate and bind Novartis on any significant matters, or have authority to waive or deviate from Novartis's established policies and procedures without its prior approval. What Novartis characterizes as the Reps' exercise of discretion and independent judgmentability to answer questions about the product, ability to develop a rapport with a physician who has a certain social style, ability to remember past conversations with a given physician, ability to recognize when a message has been persuasiveare skills gained and/or honed in their Novartis training sessions. As described in Part I.A. above, these skills are exercised within severe limits imposed by Novartis. Thus, it is undisputed that the Reps, inter alia,  have no role in planning Novartis's marketing strategy;  have no role in formulating the core messages they deliver to physicians;  are required to visit a given physician a certain number of times per trimester as established by Novartis;  are required to promote a given drug a certain number of times per trimester as established by Novartis;  are required to hold at least the number of promotional events ordered by Novartis;  are not allowed to deviate from the promotional core messages;  and are forbidden to answer any question for which they have not been scripted. Novartis argues that the Reps exercise a great deal of discretion because they are free to decide in what order to visit physicians' offices, free to decide how best to gain access to those offices, free to decide how to allocate their Novartis budgets for promotional events, and free to determine how to allocate their samples. ( See Novartis brief on appeal at 51.) In light of the above controls to which Novartis subjects the Reps, we agree with the Secretary that the four freedoms advanced by Novartis do not show that the Reps are sufficiently allowed to exercise either discretion or independent judgment in the performance of their primary duties. Accordingly, we conclude that the district court should have ruled that the Reps are not bona fide administrative employees within the meaning of the FLSA and the regulations.