Second Circuit Finds Pharmaceutical Sales Reps Not Exempt Under FLSA
July 16, 2010
On July 6, 2010, the Second Circuit Court of Appeals held that pharmaceutical sales representatives employed by Novartis Pharmaceuticals Corp. (“Novartis”) are not exempt from the overtime pay requirements of the Fair Labor Standards Act (“FLSA”) as either “outside sales” or “administrative” employees. In so doing, the Court determined that the Secretary of Labor’s interpretations of the regulations promulgated under the FLSA defining “outside sales” and “administrative” employees, as set forth in the Secretary’s amicus brief , were entitled to “controlling” deference.
The Second Circuit rejected Novartis’ argument that its sales reps “made sales” within the meaning of the “outside sales” regulations because the reps only promoted a drug to a physician. They could not lawfully take an order for its purchase or obtain a binding commitment from the physician to prescribe the drug to a patient. While the sales reps provided physicians with free samples, Novartis sold its drugs to wholesalers, which then sold them to pharmacies, and the pharmacies ultimately sold the drugs to the patients who had prescriptions for them. Accordingly, since the sales reps did not “make sales,” they were not “outside salespeople” within the meaning of the FLSA and the regulations.
The Court also agreed with the Secretary of Labor that the sales reps were not “administrative” employees under the FLSA because the marketing skills “gained and/or honed” through Novartis training sessions did not demonstrate that the sales reps were “sufficiently allowed to exercise either discretion or independent judgment in the performance of their primary duties.”
Writing for the Court, Judge Amalya L. Kearse acknowledged that a number of federal district courts have held that pharmaceutical sales reps are exempt under the outside sales and/or administrative exemptions, but responded that “[t]hose cases are, of course, not binding on us, and their reasoning does not persuade us that the Secretary’s interpretations of the regulations should be disregarded.” Judge Kearse added, “[t]o the extent that the pharmaceuticals industry wishes to have the concept of ‘sales’ expanded to include the promotional activities at issue here, it should direct its efforts to Congress, not the courts.”
