Under the Fair Labor Standards Act (FLSA), employees who work more than 40 hours a week are entitled to overtime pay unless they fall under one of the Act’s enumerated exemptions. The 3d U.S. Circuit Court of Appeal found that a Johnson & Johnson sales representative fell within the “administrative” exemption, based upon that person’s high level of planning and foresight, along with her “exercise of discretion and independent judgment with respect to matters of significance” and, therefore, was not entitled to overtime pay. Smith v. Johnson & Johnson, 3d Cir., No. 09-1223, February 2, 2010.

An administrative employee, as defined under the FLSA, is someone who is compensated at a salary or on a fee basis at a rate of not less than $455 each week, and whose primary duty is 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.” In addition, an administrative employee’s primary duty must include “the exercise of discretion and independent judgment with respect to matters of significance.”

Patty Lee Smith was employed by McNeill Pediatrics, a subsidiary of Johnson & Johnson (J&J), and held the position of Senior Professional Sales Representative from April 2006 until October 2006. Smith filed a legal action seeking overtime pay for that period, and attempted to certify her lawsuit as a class action. The district court granted J&J’s motion for summary judgment, finding that Smith fell within the “administrative” exemption of the FLSA, and Smith appealed.

On appeal, the Third Circuit analyzed Smith’s job responsibilities, which primarily involved visiting physicians in their offices or at hospitals and explaining and extolling the benefits of Concerta, a prescription drug used in the treatment of attention deficit disorders. Smith did not sell the drug, but visited about 10 physicians each day, attempting to maximize the number of prescriptions written for Concentra by doctors within her assigned territory. J&J allowed Smith to set her own itinerary and to schedule the visits as she saw fit. Smith was given a budget to cover her efforts, but was allowed to use her discretion on how it was spent. According to Smith’s job description, she was required to plan and prioritize her responsibilities in a manner that maximized business results. The documentation in the case indicated that Smith was to develop a strategic plan to achieve higher sales within her territory. Smith herself testified that her job was not “micromanaged.”

Smith’s “non-manual” work required her to formulate business strategy, which put her squarely within the FLSA’a requirement that an administrative employee conduct work that is “related to the management or general business operations of the employer.” Further, because Smith was allowed to and, in fact, encouraged to, run her territory as she saw fit, she was able to exercise “discretion and independent judgment” regarding her employer’s business – also a criterion of the administrative exemption under the FLSA. On those facts, the Third Circuit found Smith to be exempt from the overtime provisions of the FLSA. Further, in view of the Court’s decision on the FLSA exemption, Smith’s motion for class action certification became moot, and the Court upheld its dismissal.

This case was decided in accordance with the specific facts of Smith’s employment responsibilities. Here, the Third Circuit observed that the evidence portrayed Smith as the manager of her own business who could run her territory as she saw fit. Those facts supported Smith’s classification under the “administrative” exemption. However, the Court also pointed out that there presently are similar cases pending in various other Circuits and related to pharmaceutical sales persons, to which this decision may not apply. Employers must understand that such claims are decided on the specific facts involved, and must recognize that there is no blanket exemption for such sales personnel.