The Courts, FLSA and Pharma Sales Reps - Overtime is the Question
At issue in several federal courts is whether or not pharmaceutical sales
representatives are covered by the Fair Labor Standards Act (FLSA). The
FLSA mandates overtime pay for non-exempt employees who work more than
40 hours in a work week.
Pharmaceutical sales representatives claim their employers have violated the FLSA by not paying them overtime. The drug companies argue that sales representatives fall within an exemption to the FLSA for outside sales employees. Thus, the key question before the courts is whether these pharmaceutical sales representatives are “outside sales” employees within the meaning of the FLSA.
Pharmaceutical sales representatives work for drug companies visiting physicians and encouraging them to prescribe their employer’s drug instead of a competitor’s. These pharmaceutical sales representatives are paid salaries plus commissions based on how the drug sales trend in their sales territory following their sales calls to the physicians. The “sales reps” drive pharmaceutical sales by providing:
- data to the physicians about recent drug trials involving their drugs and competitors,
- copies of medical journal articles concerning their product, or
- experts to address concerns a physician might have that may prevent him from writing prescriptions for the drug.
The courts have had difficulty resolving the exempt classification issue
surrounding pharmaceutical reps. Some courts have said yes; others say
no. Legal commentators predict the issue soon will be resolved by the
United States Supreme Court, given the inconsistent results reached in
the various appellate courts.
The Ninth Circuit ruled on February 14, 2011, that pharmaceutical sales representatives are exempt and they are not entitled to overtime pay. The court focused on the wording of the Preamble to the 2004 Department of Labor’s Wage and Hour Division supplemental rules, which only required the person “in some sense made a sale.” The Ninth Circuit found pharmaceutical sales representatives come as close to “making a sale” as is possible in this highly regulated pharmaceutical industry. In doing so, the court rejected the position offered by the Secretary of Labor in the Department of Labor’s brief, which argued the inability of a pharmaceutical sales representative to sell the product to the physicians on whom they call prevents their activities from meeting the definition of a salesperson under the statute.
While the Ninth Circuit did not give deference to the Department of Labor’s position and, in fact, rejected it to find pharmaceutical sales representatives exempt; in 2010 the Second Circuit decided to defer to the Department of Labor in a case involving the drug company Novartis. That decision found pharmaceutical sales representatives are not exempt because they have not “in some sense made a sale” given their inability to legally sell the drugs to doctors or directly to patients.
When appellate courts reach inconsistent outcomes, the common way to create harmony within the court system is for the United States Supreme Court to accept a case and issue a ruling that lower courts are then bound to follow.
The Supreme Court recently did resolve a related issue in the case Kasten v. Saint-Gobain Performance Plastics Corp. (March 22, 2011), holding that the Fair Labor Standards Act protects employees from retaliatory firing after making either a written or oral complaint about their employer’s possible violations of the FLSA. This law protects employees when they complain about an employer’s unfair compensation system without requiring them to first file suit. This should put all employers on notice of the importance of the FLSA.