Monday, July 19, 2010
The Second Circuit Court of Appeals recently rejected arguments form Novartis Pharmaceutical Corporation that Pharmaceutical Sales Representatives a.k.a., “Drug Reps” were exempt from overtime payment since they were Outside Salespersons, or Administrative Employees under the Fair Labor Standards Act (FLSA). The court reached this decision after concluding that “Drug Representatives” actual do not actually sell any products and they have limited discretion over their work routines. In ruling for the Pharmaceutical Representatives, the Court of Appeals sent the case back to the lower court (District Court) for “further proceedings”.
What makes this case of interest is that a number of earlier FLSA cases have found in favor of the drug companies and their claims that Pharmaceutical Sales Representatives are outside sales and/or administrative employees under the Act. . In an unpublished ruling, the United States District Court for the District of New Jersey found Pharmaceutical Sales Representatives of Alpharma, LLC were exempt from the overtine provisions of the Fair Labor Standards Act (FLSA) since they met the administrative employee exemption under the Act. Alpharma, LLC, is a subsidiary of King Pharmaceuticals and a global producer of animal health products.
In a decision filed February 02, 2010, the United States Court of Appeals for the Third Circuit ruled in favor of an administrative employee exemption for Pharmaceutical Sales Representatives involving Johnson and Johnson. However, in the same filing, the Court declined to offer an opinion that Johnson and Johnson had proven a case for outside sales exemption by stating in its decision:
“Inasmuch as we affirm the District Court’s application of the administrative employee exemption, we do not address the question of the applicability of the outside salesman exemption.”
As recently as November 2009, The United States District Court for the District of Arizona ruled that Glaxo “Sales Reps” were exempt from FLSA and thus exempt from overtime pay. In October 2007, the U.S. District Court for the Central District of California agreed with Wyeth, Bayer, and Roche concluding that Pharmaceutical Sales Representatives were exempt from FLSA as “outside salesmen”.
When the District Court found in favor for Novartis, the court cited the FLSA standards for an outside salesperson as an employee, “ Whose primary duty is: making sales or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and who is customarily and regularly engaged away from the employer's place or places of business in performing such primary duty.” In agreeing that Novartis Pharmaceutical Sales Representatives were “administrative employee”, the District Court cited DOL regulations that employees who “earns more than $455 per week and whose primary duties include: (1) "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" and (2) "the exercise of discretion and independent judgment with respect to matters of significance."
Of significance here is that you may not be able to depend on your sole judgment that a positions meets the test for either outside sales or administrative employee exemption for overtime. At issue, are a number of points including your organization’s reputation in the public community, labor market, and business community and the loss of Goodwill with those audiences? It might be more practical to redesign job rather than be faced with large and costly litigation costs. A number of small changes in a job’s “administrative” duties could make it clear that the role meets the administrative employee exemption, even if it does not meet the outside sales test.
As with any action dealing with Federal, state or local laws, rules, and regulations, you should seek qualified credential professional assistance in dealing with such matters.
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