“Outside Salespersons” and “Administrative Employees” FLSA Exemptions for Pharmaceutical Representatives

Wednesday, July 21, 2010

To revisit the Second Circuit Court of Appeals recently rendered decision in Novartis’ Fair Labor Standards Act (FLSA) and their claim of exemption from overtime payment since their Drug Representatives were Outside Salespersons, or Administrative Employees under FLSA.

In reaching the decision that Novartis’ “Drug Representatives” were not Outside Salespersons, or Administrative Employees under FLSA, the Court cited a number of facts in the case concerning Novartis’ “Drug Representatives” as salespersons:

1. They do not sell Novartis’ products to physicians
2. There is no exchange of goods or services
3. There is no contracting to sell goods or services
4. There is no consignment to sell goods or services
5. No orders are taken for the sales of any goods or services
6. No transfer of title occur

With these facts in mind, how can a reasonable person conclude that Novartis’ “Drug Representatives” are Outside Salespersons? While it is correct to recognize the Rep’s are “marketing” and “promoting” Novartis’ products, there is no clear linkage between the marketing of the products and the consumption of those products by a physician’s writing of a prescription, days, weeks or months later. Novartis is only able to track the sales of its products through a secondary party who can then only report those products sold in the physician’s geographical area. Since other factors beyond the Rep’s interactions may influence the physician’s prescribing a Novartis product, it would require a grand leap of faith to assume that the Rep was the sole influence on the physician’s behavior.

After the Court addressed the question of Outside Salesperson, it turned its attention to whether or not Novartis’ “Drug Representatives” were exempt Administrative Employees. Once again, the court relied on the facts in the lower court’s finding as well as its own and concluded that Rep’s:

1. Have no authority formulate, affect … Novartis’ management polices

2. They are not involved in short or long term planning
3. They do not carry out major assignments of Novartis’ business operations
4. They cannot bind Novartis to any matters of significant financial impact
5. They cannot change the core Novartis messages to the physician
6. They cannot independently determine the number office visits per week or month
7. They cannot change the number of time a specific drug is promoted
8. They are required to follow a specific script when dealing with physicians

The Novartis “Drug Representatives” contended that such restrictions rendered them little more than “robots”. While that analysis may seem extreme, it is clear that Rep’s had a much-reduced level of independent judgment when it came to matters dealing with physicians.

Novartis argued, on other hand, that Rep’s had the ability to exercise control over what restaurants catered physician events, what hotels hosted those events, what foods were or were not served at these various events. The Rep’s rebutted with the fact that all financial matters were tightly controlled within budgets overseen by several layers of management.

In providing its opinion, the Appeals Court simply sent the case back to the lower District court with the directions to:

“We have considered all of Novartis’s arguments in support of the judgment and have found in them no merit. We vacate the judgment of the district court and remand for further proceedings not inconsistent with this opinion.”

Had Novartis granted a greater role of its Rep’s in the overall design, deployment, planning, and management of Novartis’ pharmaceutical marketing and sales policies, the Appeals Court might have ratified the lower court’s findings?

Possible changes to the Novartis Rep relationship:

1. Have no authority formulate, affect … Novartis’ management polices
  a. Allow Rep’s to have input into management policies
  b. Allow Rep’s to participant in management policy planning
  c. Be able to show where and how those inputs were incorporated into policies

2. They are not involved in short or long term planning.
  a. Include Rep’s in short or long term planning
  b. Allow Rep’s to participant in planning sessions
  c. Be able to show where and how those inputs were incorporated into planning

3. They cannot change the core Novartis messages to the physician
  a. Allow Rep’s to craft the core Novartis messages for their area
  b. Allow Rep’s to participant in core messages planning sessions
  c. Be able to show how Rep’s crafted the core Novartis messages

4. They cannot independently determine the number office visits per week or month
  a. Allow Rep’s to determine the number office visits, as part of “planning”
  b. Allow Rep’s to determine the who, what, when, where, and number office visits
  c. Be able to show how Rep’s determined the number office visits

5. They cannot change the number of times a specific drug is promoted
  a. Allow Rep’s to determine number of times a specific drug is promoted, as part of “planning”
  b. Allow Rep’s to determine the who, what, when, where, and number drug promotions
  c. Be able to show how Rep’s determine number of times a specific drug is promoted

6. They are required to follow a specific script when dealing with physicians
  a. Allow Rep’s to craft a specific script when dealing with physicians
  b. Allow Rep’s to craft a deviations from that script
  c. Be able to show how Rep’s crafted a specific script and its deviations

As with any matters with potential regulatory, legal, and financial, you should seek professional credentialed advice.