Winning Is Not Everything

Whether or not Vince Lombardi actually said "Winning isn't everything - it's the only thing" (see http://aafla.org/index/FootballStudies.html), making sales isn't necessary to establish the outside sales exemption to the Fair Labor Standards Act. That's the lesson of Gregory v. First Title of America, Inc., decided by the US Court of Appeals in Atlanta on January 27. Nelda Gregory, who had been marketing director for a Florida title insurance company for slightly over 6 months, was initially paid $1000 per week but switched, at her own request, to a commission-only compensation plan based on 50% of closed orders. She was never paid extra for overtime.

After she was fired, she filed suit, contending she was entitled to additional compensation under both her employment contract and the FLSA. Her argument was, in a nutshell, that she couldn't and didn't "sell": Her work consisted of trying to generate business by urging lenders and real estate salespeople to refer business to her employer, and she even lacked a license to sell title insurance. Apparently unimpressed with that position, the District Court threw the case out.

Although it took the Court of Appeals 24 pages of analysis, summary judgment was affirmed. Deeming the question of whether Gregory was an exempt outside salesperson to be "a close one" requiring the court "to navigate between a rock and a hard place (or Scylla and Charybdis, for students of the classics)," the per curiam opinion resolved the issues in the employer's failure, but Gregory proved to be her own worst enemy in the process. In fact, you could as easily say Gregory failed to prove, because she offered no evidence of the overtime hours she had worked and hadn't even informed her employer of her assertions in this regard until just before the axe fell. She simply said the employer "should have known." On that basis, the court found it unnecessary to resolve the tough question and send Ms. Gregory on her way.

While the results were favorable for First Title, the lessons are clear: Make sure your exemption is borne out by the facts and the law (it's the employer's burden to prove exemption as an affirmative defense), and never trust that your opponent won't put together the best case possible; hope is not a strategy (which is, after all, the title of a popular book on - you guessed it - sales).

Two Pharmaceutical Companies Successfully End Wage and Hour Suits by Their Sales Representatives

In the past weeks, Johnson & Johnson and Novartis each won summary judgment in cases brought by their respective sales representatives who had alleged that the sales reps were nonexempt under the FLSA and state law. Despite the clear victories, the Courts’ opinions offer different rationales for exemption depending on whether the outside sales representative exemption or the administrative exemption is used. This issue could make its way to the highest court in the land in the near future to resolve the ambiguity facing employers.

Johnson & Johnson had been sued by a former sales rep of a J&J subsidiary, Ortho-McNeill Pharmaceutical, in the United States District Court for the District of New Jersey in the case Patty Lee Smith v. Johnson & Johnson, case no. 06-cv-04787. In granting J&J’s motion for summary judgment, Judge Linares agreed with J&J’s assertion that its pharmaceutical sales reps were not misclassified and were exempt under the administrative exemption. Additionally, the plaintiff had brought claims based on actions taken more than three years prior that time-barred. Judge Linares recognized the lack of clarity in how to treat pharmaceutical sales reps under the FLSA, stating that “Smith’s position of Senior Professional Sales Representatives occupies a somewhat ambiguous zone under the FLSA.” Finding the logic of the Ruggieri case persuasive on the issue of how the FLSA outside sales exemption is applied, the Court denied that Ms. Smith could be considered an outside sales representative as envisioned by statute and regulation under the FLSA. Instead, the Court focused on the exemption for employees acting in an administrative capacity and found that J&J met its burden to demonstrate that Smith’s role was an “administrative advertising and marketing position with a substantial impact on J&J.” The Court noted the administrative exemption had been used in the Amendola case [click here for our blog entry on the Amendola case]. In closing, the Court noted that its granting of summary judgment for J&J mooted Ms. Smith’s motion to certify the action as a collective FLSA action. To read the Court’s opinion in the Smith case, click here.

Novartis Pharmaceutical Corp. similarly won summary judgment to beat a consolidated class action brought by current and former pharmaceutical sales representatives of Novartis in the United States District Court for the Southern District of New York entitled In Re Novartis Wage and Hour Litigation, case no. 06-MD-1794(PAC). Like J&J, Novartis argued that its pharmaceutical sales reps were exempt from overtime pay as outside sales representative and administrative employees under the FLSA and applicable state law (plaintiffs worked in either New York, California, or other states and were divided into group based on where they provided services for Novartis). The Court’s opinion provides a thoughtful summary of the potentially applicable exemptions and the various sources of interpretations (regulations, DOL guidance, and case law like the 2008 Ruggieri and Amendola decisions) and can be read by clicking here. Ultimately, the Court found that the pharmaceutical sales reps were exempt from overtime payment both on a narrow reading of the outside sales representative exemption (as applicable under the FLSA, California law, and New York law) and as administrative employees (under the FLSA, New York and California as well). The Court declined to reach the issue of whether the pharmaceutical sales reps were also exempt under the highly compensated employee exemption.

To view our blog entry from June 24, 2008 regarding the applicability of FLSA exemptions to pharmaceutical sales reps, click here.

Why We Blog

Portfolio Media, Inc. has now released its 2009 Law360 Litigation Almanac, a 300-page-plus analysis of suits filed within the last calendar year. Among the findings, summarized in today's Employment Law360, are that the boom in new filings of Fair Labor Standards Act litigation, triggered by the 2004 release of new "white collar" exemption regulations, continues, with significant increases in new cases and an exponential growth of collective or "class" litigation.

Major judgments, verdicts and settlements have fueled this phenomenon. Critical issues include classification of workers - as to employer assertions of exempt status as well as challenges to independent contractor designations and the use of other contingent personnel; time worked issues ("donning and doffing," rest periods, the use of electronic communications outside regular duty hours or away from the employer's regular office facilities); and assaults on entire industry segments such as retail establishments, tipped employees, inside sales, call centers, and marketing representatives. Finally, retaliation claims are on the rise, and we forecast this as an area of even greater concern in the future.

Our blog offers a sampling of recent developments, but it can only touch on the issues which are topical, attention-grabbing, or downright unusual. Dramatic changes in government and the economy are causing us all to reevaluate our practices in an effort to avoid the distractions and expense of making war over workplace concerns. Our resolution for the new year is to continue to improve the quantity and quality of our postings to afford our readers with the best information available to assist in weathering this storm. As always, we welcome your feedback, and thank you for allowing us to take up time in your busy day.

See Employment Law360 article...

Asking the Right Questions

When defending employment litigation, attorneys want to be certain they have covered all the bases, so when counsel for Chinese Daily News was deposing the named -plaintiff and two others who had filed declarations supporting class certification, he asked each "questions related to their union sympathies and union-related activities" - a natural line of inquiry since it appeared that the litigation was part of a long-simmering feud between the largest Chinese-language newspaper in North America and the Communications Workers of America.

A principle of US labor law which often traps the unwary is that employer efforts to prohibit or inquire into employee discussions of "matters of common concern" are generally deemed to be an interference with "protected concerted activity" and, therefore, constitute an unfair labor practice. This concept applies even in the absence of a union, and the National Labor Relations Board is of the view that policies or practices which ban disclosure of compensation and benefits and forbid discussions on the subject are per se violations of the law.

These two forces collided when the CWA, as part of their 9-case NLRB litigation, challenged the deposition questions as improper. Lana H. Parke, an Administrative Law Judge ruled that the employer's "significant interest in defending itself" trumped the employees' rights, particularly since the questioning dealt with the activities of the three individuals and not their interactions with others. The Union appealed to the "full" NLRB - currently consisting of only two members due to squabbling over recess appointments to the body. The two Board members concluded that asking one of the individuals how he had voted in the representation election crossed the line - even though he was an open Union supporter - because of the overriding interest in maintaining the confidentiality of the voting process. See www.nlrb.gov/shared_files/Board%20Decisions/353/v35366.pdf.

This decision takes on even more significance in light of current efforts to eliminate Board-supervised elections altogether and a push to afford even greater protections to employees' conversation about pay and benefits. A full appreciation of how all of these considerations interplay is essential to an employer's approach to the challenges of today's workplace.