Opinion ID: 799454
Heading Depth: 3
Heading Rank: 1

Heading: Work Directly Related to Management or General Business Operations

Text: 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 employee must perform work directly related to assisting with the running or servicing of the business, as distinguished, for example, from working on a manufacturing 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; insurance; quality control; purchasing; procurement; advertising; marketing; research; safety and health; personnel management; human resources; employee 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 management or general business operations of the employer's customers. Thus, for example, employees acting as advisers or consultants to their employer'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 within the meaning of 29 C.F.R. § 541.201(a). [21] 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 administrative 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 exemption in other courts have involved employees who possessed greater authority with respect to strategic design, proposal writing, supervision or similar significant responsibilities. We cannot accept the plaintiffs' view. We begin with the language of the regulations. Specifically, the regulations 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 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 development and production of pharmaceutical products. The plaintiffs' work supports that function, but is distinct from it. [22] Furthermore, in the preamble to the current regulations, the Department of Labor reaffirms the view it has 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 management 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 departments 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 description of the work of the representatives here, they are sufficiently similar to suggest that the representatives' work is directly related to the general business operations of the pharmaceutical companies. [23] The representatives here are the principal ongoing representatives of the company to the professional community 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 continuing 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 effectiveness, 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 complaints 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 administrative exemption, we noted that her tasks, including 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 investigating automobile accidents in the field, interviewing witnesses, physically inspecting damage and estimating repair costs using appropriate software. If the appropriate authorities within the company determined that liability had been established and coverage 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; 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 (quotation 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 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 representatives played no meaningful role in negotiation. Although they recommended appropriate combination[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 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 administrative exemption.