Court Rules Drug Representatives Not Exempt from Overtime Requirements

Several weeks ago, the Second Circuit Court of Appeals paved the way for pharmaceutical sales representatives to pursue overtime claims against their employers. The decision in In re: Novartis Wage & Hour Litigation vacated a lower federal court decision that had dismissed a class action lawsuit by 2500 pharmaceutical representatives who claimed that they were improperly classified as exempt from overtime. The decision allows the class action to continue and will likely spur other class actions and individual claims by drug reps.

The Novartis decision homes in on the “outside salesperson” exemption that exists under federal law. If an employee is properly classified as “outside salesperson”, then they are not entitled to overtime regardless of the number of hours worked in any given workweek. According to the court in Novartis, there is a significant distinction between obtaining commitments to buy and promoting sales. In the Second Circuit's view, merely promoting sales isn't enough — the reps have to actually sell product or services in order to fall within the outside sales exemption.

In its decision, the court relied on both the regulations and arguments made by the government that “make it clear that a person who promotes a product that will be sold by another person does not in any sense intended by the regulations, make the sale.” According to the court, the interaction between “physicians and the Reps [is] less than a ‘sale.'”

As noted by the court:

[W]here the employee promotes a pharmaceutical product to a physician but can transfer to the physician nothing more than free samples and cannot lawfully transfer ownership of any quantity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase and cannot lawfully even obtain from the physician a binding commitment to prescribe it, we conclude that it is not plainly erroneous to conclude that the employee has not in any sense, within the meaning of the statute or the regulations, made a sale.

The Second Circuit also rejected the notion that the drug reps fall within the administrative exemption as well because of the ability to bind the company with some financial commitments.

Clearly, this case has significant implications for the pharmaceutical industry and their employees. Pharmaceutical companies now need to reevaluate whether the Novartis decision justifies a reclassification of their drug reps. For employees who make their living as drug reps and who are working more than 40 hours a week, a door has opened for overtime claims.