Opinion ID: 799454
Heading Depth: 3
Heading Rank: 2

Heading: Primary Duty Includes the Exercise of Discretion and Independent Judgment

Text: 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 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. (c) The exercise of discretion and independent judgment implies that the employee has authority to make an independent choice, free from immediate direction or supervision. However, employees can exercise discretion and independent judgment 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 recommendations for action rather than the actual taking of action. The fact that an employee's decision may be subject to review and that upon occasion 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 not involve the exercise of discretion and independent 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 messenger who is entrusted with carrying large sums of money does not exercise discretion and independent judgment with respect to matters of significance even though serious consequences may flow from the employee's neglect. Similarly, an employee who operates very expensive equipment does not exercise discretion and independent judgment with respect to matters of significance merely because improper performance of the employee's duties may cause serious financial loss to the employer. Id. § 541.202 (internal citation omitted). The plaintiffs contend that their work fails to meet the standard set forth in the regulation. The Department of Labor supports the position of the plaintiffs, relying principally on its own prior opinion letters in other contexts, as well as the Second Circuit's decision in Novartis, 611 F.3d 141. By contrast, the pharmaceutical companies assert that the representatives had a host of core duties committed to their discretion, including determining how best to gain access to particular physicians and managing their limited discretionary budgets. Their primary argument, however, focuses on the discretion that an individual representative must employ in the course of an individual sales call with a physician to communicate effectively his employer's core message to the specific audience and to address a physician's particular concerns. The application of the discretion and independent judgment prong in the pharmaceutical sales context is a question of first impression in this circuit. Several of our sister circuits have considered similar cases, however, and, we begin our consideration of this facet of the case by examining their holdings. We focus on two decisions that place the issue before us in stark relief. The first is the case upon which the plaintiffs, supported by the Secretary, rest a substantial part of their argument, the Second Circuit's decision in Novartis, 611 F.3d 141. The employer in Novartis raised almost identical arguments concerning the discretion exercised by its representatives to those that Abbott and Lilly raise here. The Second Circuit rejected those arguments, largely by [c]omparing the record as to the Reps' primary duties against the illustrative factors set out in § 541.202(b). 611 F.3d at 156. The court concluded that the record before it showed no genuine issue of fact on some specific factors in the regulation, including the authority to commit the employer on matters having significant financial impact or to formulate management policies or practices. The court further concluded that other activities evinced not discretion but simply the application of skill. Not only is the application of skill to established practices insufficient to demonstrate discretion, see 29 C.F.R. § 541.202(e), the Second Circuit determined that the skills are exercised within severe limits imposed by the employer. Novartis, 611 F.3d at 157. Finally, the court concluded that those matters truly within the discretion of the representatives, such as setting daily schedules, allocating budgets for promotional events and allocating samples, were too insignificant to warrant application of the exemption. By contrast, in Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir.2010), the Third Circuit reached an opposite result. The court took note of the plaintiff's own characterization of her independence in performing her job responsibilities. Specifically, the Smith plaintiff stated that she was allowed to run the territory the way [she] wanted to, id. at 283 (quotation marks omitted), which the court characterized as an admission that she was the manager of her own business, id. at 285. Notably, however, although the Third Circuit carefully limited its holding to the specific facts developed in discovery in the case before it, id. at 283 n. 1, the job responsibilities to which the plaintiff referred closely mirrored those described for the Novartis representatives. As the Third Circuit described those duties: In essence, Smith's position required her to travel to various doctors' offices and hospitals where she extolled the benefit of J & J's pharmaceutical drug Concerta to the prescribing doctors. J & J hoped that the doctors, having learned about the benefits of Concerta, would choose to prescribe this drug for their patients. Smith, however, did not sell Concerta (a controlled substance) directly to the doctors, as such sales are prohibited by law. 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. 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 commitment 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 accompanied 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 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, supported 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 included damaging deposition admissions by the plaintiff: 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 plaintiffs 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 judgment, 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 discretion 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. Although the regulatory constraints of the industry dictate that the representatives must deliver the pharmaceutical companies' messages with precision, the representatives 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 market. In speaking to individual physicians, the representatives must tailor their messages to respond to the circumstances, whether those be the time or attention constraints from the physician or the concerns and objections 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, reciting scripts. The records show that, although most representatives had no medical background, the companies trained them extensively in disease processes, their own assigned products and products manufactured by competitors; indeed, they were tested in their substantive knowledge. The level of attention given to substantive education demonstrates that the company viewed these individuals 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 individual than the representative himself. The representative 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 consider 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 physician also manifest a substantial measure of judgment. 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 comprehensive visit plans for the territories and checking in regularly by phone to keep each other abreast of developments in particular visits with physicians. Representatives 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 administrative 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 exercises discretion that are clearly not present in this case. See 29 C.F.R. § 541.202(b). We previously have acknowledged, however, that the nature of a large, modern business 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 provisions 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 exercises discretion and independent judgment include the employee's freedom from direct supervision, personnel responsibilities, troubleshooting or problem-solving activities on behalf of management, 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 competitive products or services and distinguish them from competitor's products or services, advertising or promotion work, and coordination of departments, 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 the application of skill, rather than judgment. Although they are correct that the regulations draw this distinction and caution that skill is insufficient to warrant the exemption, skill and judgment are not mutually exclusive. The records clearly demonstrate that the representatives 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, procedures 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 performing other mechanical, repetitive, recurrent or routine work. Id.