Pharma Reps Paid to Sell or to Market, That Is the Question

In an effort to resolve a contentious debate dividing federal courts, the United States Supreme Court will soon consider whether pharmaceutical sales reps are exempt from overtime pay and other Fair Labor Standards Act (FLSA) protections. 

In agreeing to hear an appeal to the Ninth Circuit’s decision in Christopher v. SmithKline Beecham Corp., the Supreme Court will decide whether the FLSA’s outside sales exemption applies to pharmaceutical sales representatives. According to the FLSA, the outside sales exemption applies to “any employee employed in the capacity of outside salesman.”  An employee employed in the capacity of outside salesman is one whose primary duty is making sales or obtaining orders or contracts for services. Sales include an exchange, contract to sell, consignment for sale, or agreement of shipment for sale. 

According to Department of Labor regulations, promotional work may or may not be considered as exempt outside sales work.  When promotional work is undertaken by a person who actually sells a product, the DOL considers the work to qualify for the outside sales exemption.  Nevertheless, where promotional work will not lead to actual sales or where it is incidental to sales made by someone else, the DOL does not consider it as exempt work.

In In re Novartis, the Second Circuit held that pharmaceutical sales reps do not meet the exemption’s requirements because they do not sell any drugs, do not obtain any orders for drugs, and can at most obtain from physicians a non-binding commitment to prescribe drugs to their patients.  The court based its decision in large part upon DOL guidance, where promotional activities designed to increase the prescription of certain drugs was not considered exempt sales work.  

The Ninth Circuit reached a very different conclusion in Christopher, the case now before the Supreme Court. Rejecting the findings of the Department of Labor and the Second Circuit, the Ninth Circuit court found that the outside sales exemption applied to pharmaceutical sales representatives.  The court pointed to the employees’ sales training and the employer’s requirement of sales experience as a condition for employment as evidence of their status as “outside salesmen.”  

In preparing for the Supreme Court’s ultimate decision, Employers in the pharmaceutical industry should take immediate steps to reduce the risk of costly litigation.   At a minimum, Employers who have not recently audited their wage and hour practices should consider whether this might be a good time to do so. 

Paul Bittner and David Campbell

Schottenstein, Zox & Dunn Co., LPA

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