2nd Circuit Finds Pharmaceutical Reps are Entitled to Overtime
Recently, the 2nd Circuit Court of Appeals, which governs New York, Connecticut and Vermont, found that pharmaceutical reps employed by Novartis are not exempt under the FLSA and are entitled to overtime for any hours worked exceeding 40 in a week. The court, on the same day, ruled against Schering on the same issue. The court found that these reps are not exempt from overtime as outside sales persons or as administrative employees under the FLSA. Earlier this year, the 3rd Circuit Court of Appeals, covering Delaware, New Jersey, Pennsylvania and the US Virgin Islands, found that a pharmaceutical sales rep for Johnson & Johnson and AstraZeneca reps were exempt under the administrative exemption. The 3rd Circuit did not address the outside sales exemption. A key factor in the 2nd Circuit's decision was the fact that the Department of Labor filed an amicus brief, arguing that the pharmaceutical reps were entitled to overtime. The court granted "controlling deference" to the DOL's position since it was not "plainly erroneous or inconsistent with" the DOL's regulations on the issue. It is important to keep in mind that the pharmaceutical industry is somewhat unique since the reps are barred by federal law from making actual sales to physicians. They can give samples to physicians, but cannot take orders for the purchase of drugs, and they cannot obtain a binding commitment from a physician to prescribe their particular drug. The 3rd Circuit, in reaching the opposite conclusion, found that pharmaceutical reps "make sales in the sense that sales are made in the pharmaceutical industry" and were entitled to overtime. Having been married to a pharmaceutical sales rep, I know that they do work long hours, usually over 40 per week, and their income is quite substantial, with many experienced and successful reps making over $100,000. The amount of overtime they would be entitled to, if the 2nd Circuits opinion stands, will be astronomical.
Practice Pointer. Although these cases deal with a very specific and highly regulated industry, there may be implications for other marketing jobs where actual sales are not made: such as those who may promote products sold by others, or marketing type employees who may not fall under the FLSA's administrative exemption. I anticipate that with the split among the circuits, and the wide ranging implications of the split, there is a good chance that this issue will make it's way to the Supreme Court, although it may take a number of years.
