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September 24, 2010
Are Drug Sales Reps Exempt?
Big pharmaceutical companies typically classify their sales representatives as exempt under the Fair Labor Standards Act (FLSA). The companies contend that those reps are the crucial—and only—link between prescribing physicians and the makers of the drugs they prescribe. So they must be outside salespeople, right? Maybe not.

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What happened. An estimated 2,500 sales reps for Novartis sued their employer in federal district court for misclassifying them. They had worked for the drug maker in California or New York between 2000 and 2007, and they claimed they were nonexempt and thus owed back overtime pay. A New York district judge bought Novartis’s arguments that the reps market drugs (outside sales exemption) and use independent judgment (administrative exemption) in their work. The reps appealed to the 2nd Circuit, which covers Connecticut, New York, and Vermont.

What the court said. The crux of this case is whether the reps “sell.” In fact, federal law prohibits them from doing so. Drugs are actually sold to wholesalers for pharmacies, where consumers fill the prescriptions their doctors give them. The reps’ only role is to tell doctors about the benefits of their products, offer reprints of clinical studies and some free samples, and try to obtain the doctors’ informal commitment to prescribe their drugs. Further, a drug maker has no way of knowing which doctors prescribe their products or how often. Appellate judges decided that since no money, goods, or purchase orders are exchanged, the reps do not sell.

Novartis also contended that the reps must use independent judgment in answering questions about a drug, developing rapport with a doctor who has a particular social style, remembering past visits to that doctor, and recognizing when a message has been persuasive. Again judges did not agree, siding with the reps, who said they did “low-level, discretionless marketing work, strictly controlled by Novartis.” The U.S. Department of Labor submitted a brief in the case, arguing against exemption for the reps, and judges relied heavily on that opinion. In fact, on the same day, they ruled against Schering Corporation in a similar case brought by its sales representatives. In re Novartis Wage and Hour Litigation, U.S. Court of Appeals for the 2nd Circuit, No. 09-0437-cv (7/6/1010).

Point to remember: Observers believe the issue in these cases may need to go the Supreme Court for a final ruling. A third possible reason for exempting such reps is their earnings, which are sometimes more than $100,000 a year. Under DOL’s 2004 revisions of FLSA, those are highly compensated individuals who may be exempt because of it.

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