Pharmaceutical Sales Reps and the Outside Sales Exemption

Two recent federal cases have found in favor of pharmaceutical sales representatives concerning overtime claims. For years, pharmaceutical sales reps have been off the radar when it comes to overtime claims. Most sales reps were well-compensated, enjoyed the legendary perks that came with the job (high-end meals, golf trips, presentations at resorts with physicians, etc.) and never complained about working long hours.

But, perhaps a trend in new overtime cases is emerging where courts are finding that the overtime exemption for outside sales representatives does not necessarily apply, especially when the sales reps themselves are not making any sales.

In June of this year, Judge Ruben Castillo granted summary judgment in favor of a class of plaintiffs against Abbott Labs in Jirak, et al. v. Abbott Laboratories, Inc. (N.D. Ill., Case No. 1:07-cv-03626, June 10, 2010). The plaintiffs in Jirak were responsible for generating market share and growth for certain Abbott products and making “selling presentations” but not promoting the products to patients or end-users. After analyzing the issues, Judge Castillo found that the sales reps for Abbott Labs did not make sales, but were more akin to marketers and promoters. When cross-motions for summary judgment were filed by the parties, the Judge found in favor of plaintiffs on liability and retained jurisdiction to determine any back overtime and damages due the plaintiffs.

On July 6, 2010, another pharmaceutical company, Novartis, had a decision originally in its favor overturned by the U.S. Court of Appeals for the Second Circuit. In In re Novartis Wage and Hour Litigation (2d Cir., Dkt. No. 09-0437-cv, July 6, 2010), overtime claims for a class of approximately 2500 sales representatives were reinstated and remanded to the trial court. The trial court originally found that the Novartis reps were in fact exempt under the outside sales and administrative exemption and thus, not entitled to overtime pay. On appeal, the plaintiffs, joined by the U.S. Secretary of Labor as amicus curiae, argued that in fact, the reps did not make sales. The Court of Appeals pointed out that when delivering “samples” to physicians, no money actually changes hands. If it did, such a “sale” would be a federal crime. Ultimately, the claims for overtime compensation were reinstated and the only likely issues left for the trial court to determine are back overtime and damages due the plaintiffs.

Remember that in order to qualify for the Outside Sales Exemption, all of the following tests must be met:

• The employee’s primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
• The employee must be customarily and regularly engaged away from the employer’s place or places of business.

There is no minimum salary requirement for an outside sales exemption.

According to the Department of Labor, “Making Sales” includes any sale, exchange, contract to sell, consignment for sales, shipment for sale, or other disposition. It includes the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property. “Obtaining Orders or Contracts for Services or for the Use of Facilities” includes the selling of time on radio or television, the solicitation of advertising for newspapers and other periodicals, and the solicitation of freight for railroads and other transportation agencies. The word “services” extends the exemption to employees who sell or take orders for a service, which may be performed for the customer by someone other than the person taking the order.

An outside sales employee makes sales at the customer’s place of business, or, if selling door-to-door, at the customer’s home. Outside sales does not include sales made by mail, telephone or the Internet unless such contact is used merely as an adjunct to personal calls. Any fixed site, whether home or office, used by a salesperson as a headquarters or for telephonic solicitation of sales is considered one of the employer’s places of business, even though the employer is not in any formal sense the owner or tenant of the property.

By Paul Bittner, Schottenstein, Zox & Dunn Co., LPA, Columbus, Ohio
Member, Wage & Hour Defense Institute

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