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Second, on her meal period class claim, the named plaintiff alleged that she never received an uninterrupted 30-minute lunch break, presented testimony of another employee who claimed he had been required to work through unpaid meal breaks, and described data from earlier litigation purporting to show that 23.1 percent of unpaid breaks were interrupted by work. Under California law, an employer must relieve its employees of all duty for an uninterrupted 30-minute period but need not actually ensure its employees take meal breaks and need only pay for interrupted or missed meal breaks when it knows or should have known that an employee was working through the meal period. Again, the district court found Comcast instructive, stating that while the plaintiff’s “evidence and method of proof was applicable to the class as a whole, it does not adequately tie [her] allegation . . . to a proper and reliable measure of damages for work done on those breaks,” particularly because of the requirement to prove the employer knew or should have known of the work during the unpaid meal periods.

The Forrand decision represents at least the fourth wage and hour decision applying Comcast’s requirement that plaintiffs establish “damages are capable of measurement on a classwide basis” and denying class certification for failure to satisfy Rule 23(b)(3)’s predominance requirement. As discussed in a prior post, two of these decisions were in district courts in the Second Circuit – Roach v. T.L. Cannon Corp., and Tracy v. NVR, Inc. – and one was in a district court in the Ninth Circuit – Ginsburg v. Comcast Cable Communications Management. In addition, on April 1, 2013, the U.S. Supreme Court vacated and remanded Ross v. RBS Citizens, N.A. for further consideration in light of Comcast. In Ross, the Seventh Circuit had affirmed the district court’s decision certifying a class action involving off-the-clock and misclassification claims.

However, in Martins v. 3PD, Inc., a federal district court in Massachusetts certified a wage and hour class action and distinguished Comcast on the grounds that the parties in Comcast had conceded that the individual damages calculations fell within the “Herculean task” category and therefore warranted denial of class certification under the predominance requirement. The court interpreted Comcast “not to foreclose the possibility of class certification where some individual issues of the calculation of damages might remain, as in the current case, but those determinations will neither be particularly complicated nor overwhelmingly numerous.”

These decisions are likely only the start of a potential flood of decisions discussing the application of Comcast to class certification decisions in wage and hour cases. We will keep you posted as significant developments occur.

*The case was litigated by Federal Express’s in-house legal department.

Similarly, as to the FLSA collective claims, the court reasoned that the broad variations in the SMRs’ work activities made it “impossible to make a blanket determination concerning the FLSA exempt status of the entire class of putative plaintiffs in this case . . . .” In this regard, the court noted that the evidence demonstrated a wide variety of employment practices and time management requirements among the SMRs so that dozens of mini-trials would be required to determine whether individual SMRs satisfied the outside sales exemption.

The Tracy decision is significant for a number of reasons. First, the decision is a notable exception to the many decisions by the district courts in the Second Circuit, which have generally granted certification in both FLSA collective actions and Rule 23 class actions. Although the court specifically noted that “it seems beyond peradventure that the Second Circuit’s general preference is for granting rather than denying class certification,” the court relied on Comcast and Dukes to buck the trend. In doing so, the Tracy court joins the court in Roach v. T.L. Cannon Corp.,* the only other decision to date within the Second Circuit to apply Comcast to deny class certification in a wage and hour case.

Second, the decision is important because of its potential application to other outside sales misclassification cases in other industries, in which sales and marketing representatives who call on customers typically engage in varied activities, in different locations, for varied periods of time outside of the office.

While it remains to be seen how the Second Circuit and courts in the Southern and Eastern Districts of New York will apply Comcast to Rule 23 wage and hour class actions, and how all courts will apply Comcast to FLSA collective actions, so far Comcast has raised the burden on plaintiffs seeking class certification to show not only commonality as to their claims but also that their damages must be measurable on a classwide basis. 

*Littler attorneys represented the defendant in that case.

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The district court found that the plaintiffs qualified as exempt executives under the FLSA, and granted the employer’s motion for summary judgment. On appeal, the plaintiffs argued that each team of pickers could not constitute a customarily recognized subdivision of the company because each team of pickers was essentially the same. The Court of Appeals rejected the plaintiffs’ argument, finding that physical, functional, or shift separation is not necessary for a team of employees to be deemed a customarily recognized subdivision or department of the company.

Instead, the focus of the analysis is on the actual team of employees and their duties. Here, each team of pickers had a defined membership and was led by the same captain on each shift. Pickers did not change teams without being transferred by the night warehouse manager, each team of pickers met in an assigned work area, and the captains are in charge of supervising their team. For these reasons, the court concluded that each team of pickers was a customarily recognized subdivision or department of the company and that each team of pickers had a permanent status and continuing function. Therefore, the captains who supervised the teams of pickers and who met all other requirements of the executive exemption qualified as exempt executive employees under the FLSA.

Following Baldor, employers that utilize the executive exemption for those who supervise “teams” of employees should strive for consistency in form and function with respect to those teams. For example, establishing “permanent” teams of the same employees, led by the same supervisor, and reporting to the same work area, will strengthen the employer’s argument that the team qualifies as a “department or subdivision.” Of course, it is not enough that team leaders supervise a “subdivision or department” – team leaders must also meet the other elements of the exemption, including: (a) they must be compensated on a salary basis at a rate not less than $455 per week, and (b) they must have the authority to hire or fire other employees, or to make suggestions and recommendations as to the hiring, firing, advancement, promotion or any other change of status of other employees that are given particular weight.

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During Monday’s hour-long oral argument, the justices engaged in lively questioning over the application of the exemption in the pharmaceutical industry. One important point of discussion revolved around the PSRs’ ability to obtain assurances from doctors to prescribe their drugs. Attorney Thomas Goldstein represented the PSRs and argued that because PSRs do not receive binding or written commitments from physicians to prescribe medications, they do not engage in sales under Section 3(k) of the FLSA. While Chief Justice Roberts agreed that physicians merely tell the PSRs that they will consider using their products in relevant medical situations, Justice Scalia raised the point that the particularities of selling in the pharmaceutical industry should be taken into account, noting that “these people look like salesmen to me.” Respondent SmithKlineBeecham’s counsel, former Solicitor General Paul Clement, argued that the PSRs in fact are engaged in “sales” because they obtain binding commitments from doctors and that these commitments can be oral. Mr. Clement further argued that extending the DOL’s position to the industry as a whole would end in an illogical result as pharmaceutical sales representatives selling medical devices to doctors would be exempt, but representatives selling drugs would not.

Faced with massive and unexpected liability – estimated by many to be in the billions – the justices also expressed concerns over DOL’s use of amicus briefs to declare new policies. Justice Breyer questioned whether the Secretary of Labor even weighed in before the new position was advanced by the lawyers in the Solicitor’s Office of the DOL. He further indicated that the DOL should have first engaged in administrative notice-and-comment rulemaking, giving all affected parties notice before changing course on the exempt status of the PSRs. Justice Scalia asked whether it was the DOL’s policy making program to “run around the country” and make new regulations through amicus briefing. Department of Justice Deputy Solicitor General Malcolm Stewart, arguing on behalf of the United States, admitted that the DOL had received a request for an opinion letter in 2007, inquiring as to whether PSRs were outside salesmen, but that it never responded. Justice Scalia stated that he found it “extraordinary” that the DOL was going to come in – without engaging in any prior enforcement actions or issuing any agency guidance on the issue – and proclaim that 90,000 people are now owed retroactive overtime. One final point made by Mr. Clement – and echoed by Justice Ginsburg – was that, even if it is found that the PSRs do not meet the outside sales exemption requirements, the issue is not fully resolved as the position could still qualify for the administrative exemption under the FLSA. The application of the administrative exemption is not currently at issue before the Supreme Court.

This case has far reaching implications as there are over 90,000 PSRs employed by the pharmaceutical industry. In addition, the case will likely have a broader impact on the manner in which an agency can announce new positions. A decision is expected by the end of June. We will prepare a complete analysis of the decision once it is issued.

To learn more about the case and its potential implications for employers, please see Littler's ASAP, Supreme Court to Decide Significant Case on the Outside Sales Overtime Exemption, by Richard Black and Bradley Strawn.

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Under section 3(k) of the FLSA, a “sale” includes “any sale, exchange, contract to sell, consignment for sale, shipment for sale or other disposition.” The DOL’s regulations elaborate that sales “include the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property.”

Another relevant DOL regulation distinguishes sales work from “promotion work.” Under the regulations, promotion work is a type of activity:

often performed by persons who make sales, which may or may not be exempt outside sales work, depending upon the circumstances under which it is performed. Promotional work that is actually performed incidental to and in conjunction with an employee’s own outside sales or solicitations is exempt work. On the other hand, promotional work that is incidental to sales made, or to be made, by someone else is not exempt outside sales work. An employee who does not satisfy the requirements of this subpart may still qualify as an exempt employee under other subparts of this rule.

There has been a split among the courts, most notably the Ninth and Second Circuits, as to whether pharmaceutical representatives’ activities constitute sales because PSRs are prohibited by law from directly selling pharmaceuticals to physicians. The DOL has consistently taken the position that PSRs do not qualify for the outside sales exemption because they do not transfer ownership or property. The Second Circuit relied heavily on and agreed with the DOL’s interpretation and assessment in a 2010 decision.

In contrast, in Christopher v. SmithKline Beecham Corp., the Ninth Circuit declined to give deference to the DOL’s “current interpretation of the regulations.” In addition to noting the district court’s refusal to consider the DOL’s interpretation because it was “inconsistent with the statutory language and its prior pronouncements, [and] [] also def[ying] common sense," the Ninth Circuit reviewed prior Supreme Court decisions on the issue and stated, among other things, that the Secretary’s interpretation of an unambiguous statute by “an opinion letter, enforcement guidelines, or the like . . . is merely ‘entitled to respect’ to the extent the interpretation has the ‘power to persuade’ the court.”

The DOL’s amicus brief did not persuade the Ninth Circuit, which concluded that PSRs did, in fact, qualify for the outside sales exemption. Specifically, the Ninth Circuit reasoned that:

Plaintiffs' contention that they do not "sell" to doctors ignores the structure and realities of the heavily regulated pharmaceutical industry. It is undisputed that federal law prohibits pharmaceutical manufacturers from directly selling prescription medications to patients. Plaintiffs suggest that despite being hired for their sales experience, being trained in sales methods, encouraging physicians to prescribe their products, and receiving commission-based compensation tied to sales, their job cannot "in some sense" be called selling. This view ignores the reality of the nature of the work of detailers, as it has been carried out for decades.

As for the DOL’s distinction between “selling” and “promoting,” the appellate court stated that such a distinction “is only meaningful if the employee does not engage in any activities that constitute ‘selling’ under the Act.” The court further reasoned that:

PSRs are driven by their own ambition and rewarded with commissions when their efforts generate new sales. They receive their commissions in lieu of overtime and enjoy a largely autonomous work-life outside of an office. The pharmaceutical industry's representatives — detail men and women — share many more similarities than differences with their colleagues in other sales fields, and we hold that they are exempt from the FLSA overtime-pay requirement.

The Supreme Court’s decision is expected to not only resolve the numerous class and collective actions that have challenged the outside sales exemption in the pharmaceutical industry, but also to provide clarity as to the appropriate deference owed to the DOL’s opinions as expressed in amicus briefs and similar interpretive position statements.

The court determined the promotional work performed by the “sales” representatives was “not a duty directly related to Schering’s management or general business operations . . .,” adopting the Second Circuit’s analysis in In re Novartis Wage and Hour Litigation. Having already found that the “sales” representatives do not consummate sales, the court then concluded that, “neither do they design the promotional materials to be used in their sales calls . . . nor develop the ‘core message’ to be delivered during meetings with health care professionals . . . ." Likewise, while the sales representatives “helped drive Schering’s market share . . . they did so by promoting products to specific physicians in a set territory, not by marketing Schering products generally.” Schering’s representatives “use the core messages and promotional strategies developed by marketing teams; they do not develop those messages themselves or set overall market strategies.” For these reasons, their primary duty did not directly relate to Schering’s management or general business operations, and failed the second part of the test for the administrative exemption.

Schering’s sales representatives also came up short on the third part of the test for exempt administrative status according to the court. Relying once more on the Second Circuit’s decision in Novartis, supra, the trial court concluded that the discretion Schering permitted its sales representatives did not extend beyond “day to day duties” to “matters of significance.”

Thus, the sales representatives could adjust their interactions with individual physicians based on what they found to be the most effective approach. And they were not required to always deliver the same “core message” to each physician, nor to execute their sales calls according to a set script. But Schering did not permit sales representatives to present any information that had not been approved by and received from Schering. Nor were sales representatives allowed to develop their own core message, “but were instead instructed by Schering on how to deliver a core message that had been developed by a Schering marketing team . . . ." Schering set the overall market strategy for particular products, and while the sales representatives had the ability to call on doctors who were not on the target list generated by Schering, they were required to call on each doctor on that target list.

As a result of these constraints, “any discretion that Plaintiffs exercised fell within the bounds of the strategic plan and core message developed by Schering, rather than developed by Plaintiffs themselves; . . . they had no role in planning market strategy or the core message . . . ."

The court’s ruling is a further example of the unsettled state of the law on the status of pharmaceutical industry representatives. The Second Circuit’s Novartis case charts one course, determining that realities “on the ground” in the highly regulated pharmaceutical industry are insufficient to call for any industry specific analysis of what it means to make a “sale.” Meanwhile, the Ninth Circuit, in its decision in Christopher v. SmithKline Beecham, stakes out a different path with its conclusion that a “commonsensical” interpretation of the term “sale” in the pharmaceutical industry calls for a conclusion that sales representatives performing their jobs in ways much like that of their industry colleagues at Schering, qualify for the outside sales exemption.

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In light of the Circuit split, the U.S. Supreme Court granted review of the Seventh Circuit’s decision in Kasten v. Saint-Gobain Performance Plastics Corp., and has now issued its opinion.

The Kasten case involved an unwritten, oral complaint to the employer, thus implicating both issues (1) and (2) above. Kevin Kasten worked at a Saint-Gobain manufacturing plant in Wisconsin. Kasten claimed that on several occasions he complained to his supervisors and a Human Resources generalist that the location of the time clocks was illegal because it prevented employees from being paid for time spent donning and doffing their required protective gear, and said that he might file a lawsuit. After frequently being warned about not recording his comings and goings on the time clock, Kasten was terminated. He sued Saint-Gobain, claiming that his employment was terminated in retaliation for his complaints in violation of the FLSA. The Western District of Wisconsin dismissed Kasten’s case, holding that unwritten, oral complaints are not protected activity under the FLSA’s anti-retaliation provision. The Seventh Circuit affirmed, holding that while internal complaints to an employer are protected under the FLSA, such complaints must be in writing because the term “filed” implies a writing. The court thus affirmed the dismissal of Kasten’s complaint.

In light of the circuit split surrounding the interpretation of the phrase “filed any complaint,” the Supreme Court granted review. The Court vacated the Seventh Circuit’s decision, holding that unwritten, oral complaints are protected. Justice Breyer (joined by Justices Roberts, Kennedy, Ginsburg, Alito and Sotomayor, with Kagan not taking part) held that while the meaning of the phrase “filed any complaint” was ambiguous, considering the purpose and context of the statute, it should be interpreted to include unwritten, oral complaints. The Court reasoned that excluding oral complaints would: (1) undermine the FLSA’s enforcement scheme as the anti-retaliation provision enables employees to report substandard conditions without fear of economic retaliation, (2) disadvantage those with difficulty making requests in writing such as the illiterate, less educated and/or overworked, (3) prevent government agencies from using hotlines, interviews and other oral methods of receiving complaints, and (4) discourage private employers from using informal workplace grievance procedures to secure compliance.

In order to ensure fair notice to the employer, the Court held that the phrase “filed any complaint” contemplates “some degree of formality, certainly to the point where the recipient has been given fair notice that a grievance has been lodged and does, or should, reasonably understand the matter as part of its business concerns.” The Court articulated the following standard: a complaint is “filed” when “a reasonable, objective person would have understood the employee to have put the employer on notice that the employee is asserting statutory rights under the Act.” The complaint “must be sufficiently clear and detailed for a reasonable employer to understand it, in light of both the content and context, as an assertion of rights protected by the statute and a call for their protection.”

Surprisingly, the Court declined to comment on whether the FLSA protected only complaints filed with the government or whether complaints to an employer are also protected. The Court reasoned that, while the issue was addressed by the Seventh Circuit, it was not raised by the Company in its opposition to Kasten’s petition for certiorari and there was no need to resolve it in order to decide the oral/written issue. In his dissent, Justice Scalia (joined by Thomas) criticized the majority’s approach, noting that the issue was fairly encompassed within the Company’s opposition to the petition for certiorari, and would have been more logically addressed first. Justice Scalia would have affirmed the dismissal of the complaint on the ground that the plain meaning of “filed any complaint” and its context make clear that the anti-retaliation provision contemplated an official grievance filed with a court or agency, not oral or written complaints to an employer. Thus, the circuit split on whether a complaint must be filed with the government to be protected remains. However, employers are cautioned to tread carefully and be mindful that a majority of the circuit courts have extended the FLSA’s protection to internal company complaints.

The court’s reliance on Amex was surprising considering the Supreme Court’s recent order vacating and remanding the judgment in that case to the Second Circuit for reconsideration in light of Stolt-Nielsen S.A. v. Animal Feeds Int’l Corp, 130 S. Ct. 1758 (2010) (“Stolt-Nielsen”). In Stolt-Nielsen, the Supreme Court held that class arbitration is not permitted unless the parties agree to it. The district court determined, however, that Amex remained persuasive authority and analyzed Sutherland’s case using the factors articulated there.

Based on this analysis, the district court determined that the arbitration agreement at issue was unenforceable. Specifically, the court found that Sutherland’s maximum potential recovery of approximately $1,867.02, was “too meager to justify” her expenses, which were likely to exceed $200,000. The court reasoned that under these circumstances, Sutherland was unlikely to find an attorney willing to represent her. By contrast, if Sutherland was permitted to aggregate her claim with similarly situated individuals, “she would have no difficulty in obtaining legal representation.” Finally, the court asserted that enforcement of the class waiver provision would grant E&Y effective immunity from labor laws. Therefore, the court denied defendant’s motion to dismiss and compel arbitration and permitted plaintiff’s class action to proceed.

This entry was written by Sarah Green.

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The PSRs were supported in their appeal by an amicus filing by the U.S. Department of Labor, in which the Secretary argued that PSRs could not meet the “outside sales” exemption because they do not “make sales.” The DOL argued that as a result of the highly regulated nature of the pharmaceutical industry, PSRs merely promote pharmaceutical products to physicians, but those products are only thereafter purchased by a patient from a pharmacy. Thus, according to the DOL, the PSR does not “in any sense” make the sale of the product. In 2010, the Second Circuit accepted the DOL’s position and held that PSRs could not qualify for the outside sales exemption. In re Novartis Wage & Hour Litig., 611 F.3d 141 (2d Cir. 2010).

The Ninth Circuit was not impressed with this reasoning, concluding that it owed “no deference” to the DOL’s position. The court first expressed frustration that the DOL’s regulations merely paraphrased the statutory language (i.e., a “sale” means a “sale”) without setting forth a particular test for “sale” or instructing employers to look for indicia of sales. Then, the court criticized the DOL’s attempt “to draft a new interpretation of the FLSA’s language” in an amicus brief, noting that giving controlling deference to interpretations expressed for the first time in case-by-case amicus filings would effectively authorize the bypassing of the notice-and-comment rulemaking requirements of the Administrative Procedures Act.

After resoundingly rejecting the DOL’s approach to this issue, the court of appeals took the final step and held that the DOL’s position was plainly erroneous. The court viewed the term “sale” in the FLSA in a “commonsensical” fashion, noting that in light of the “structure and realities of the heavily regulated pharmaceutical industry” PSRs do, in fact, make sales. The court concluded that in this industry, the “sale” is the non-binding commitment from the physician to prescribe the PSR’s assigned product when medically appropriate. Thus, PSRs make “sales” and qualify for the outside sales exemption.

Finally, the court took note of the DOL’s “acquiescence” to the classification of PSRs as exempt for more than seventy years. Quoting Judge Posner, the court reasoned that while it is “possible for an entire industry to be in violation of the [FSLA] for a long time without the Labor Department noticing[, the] more plausible hypothesis is that the ... industry has been left alone” because DOL believed its practices were lawful. The court criticized that the DOL’s “about-face” position, “expressed only in ad hoc amicus filings, is not enough to overcome decades of DOL nonfeasance and the consistent message to employers that a salesman is someone who ‘in some sense’ sells.” The court concluded that the DOL’s argument “fails to account for industry customs and emphasizes formalism over practicality.”

The court’s holding regarding the status of PSRs under the FLSA’s outside sales exemption was significant in its own right. But the court’s strong rebuke of the DOL’s attempt to express its position on a critical wage and hour issue for the first time in an amicus filing may have far greater implications. Employers who have been concerned about the DOL’s recent policy shifts on a variety of issues, announced in amicus filings and “Administrator Interpretations,” now have an unlikely ally in the Ninth Circuit Court of Appeals. In light of the conflicting opinions on the exempt status of PSRs, however, it may only be a matter of time before the Supreme Court agrees to resolve this dispute once and for all.

This entry was written by Robert Pritchard.

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When the case was considered by the district court, it dismissed the plaintiffs’ claims, finding the Reps were exempt employees under both the “outside sales” and “administrative” exemptions set forth in the FLSA. Analyzing first the outside sales exemption, the district court concluded that even though the Reps “may not ‘sell’” in a “technical[ ]” sense, they do “make sales in the sense that sales are made in the pharmaceutical industry” and therefore they meet the “spirit and the letter” of the outside sales exemption. The district court also found that the Reps meet the administrative exemption, because they “exercise discretion and independent judgment with respect to matters of significance” when they meet with physicians, provide them with information about the company’s products, and attempt to get commitments to prescribe the products. The Second Circuit reversed and held that the Reps do not meet either exemption.

Outside Sales Exemption

The Second Circuit concluded that the Novartis Reps do not meet the requirements of the outside sales exemption because they do not “make sales.” The court relied heavily on the Secretary of Labor’s amicus curiae position that a “sale” requires an exchange of consideration between buyer and seller and that, at best, Reps simply seek a positive affirmation from physicians that they will prescribe Novartis’s products in the future.

Although Novartis argued that the preamble to the regulations accompanying the FLSA provides that “commitments to buy” may constitute “making sales” under the exemption, the court rejected the argument as applied to this case. It held that “[t]he type of ‘commitment’ the Reps seek and sometimes receive from physicians is not a commitment ‘to buy’ and is not even a binding commitment to prescribe.”

Administrative Exemption

The plaintiffs also challenged the application of the administrative exemption based on the degree of discretion the Novartis Reps have in the performance of their duties. The Second Circuit again deferred to the Secretary of Labor’s interpretation of the regulations and her position regarding their application to the facts of the case. It noted that, despite the importance of the Reps’ efforts to promote the company’s products, there was “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.” Instead, the Second Circuit accepted the plaintiffs’ claim that they do “low-level discretionless marketing work, strictly controlled by Novartis” and concluded that they did not exercise sufficient discretion and independent judgment to satisfy the administrative exemption. 

This entry was written by Lori Alexander, Michael Harvey, and Theresa Waugh.

¹ On the same day the In re Novartis ruling was issued (July 6, 2010), the Second Circuit also issued a summary order in Kuzinski v. Schering Corp., 2d Cir. No. 09-1945-cv, affirming the district court’s denial of summary judgment in a similar case.