Health Care Lawyer Blog

Under the Fair Labor Standards Act (FLSA), outside sales employees are generally exempt from overtime pay. However, employers bear the burden of proving that employees fall within FLSA exemptions that are construed narrowly against employers. A recent case out of the 2nd Circuit, In re Novartis Wage and Hour Litigation, 2nd Cir., No. 09-0437 (July 2010), considered whether outside pharmaceutical representatives fell within that exemption.

Novartis Pharmaceuticals Corp. researches, manufactures, markets and sells pharmaceuticals. However, under federal regulations, it cannot sell its drugs directly to patients. Novartis instead sells its products to wholesalers, who sells them to pharmacies. Physicians write prescriptions that permit patients to purchase the drugs from pharmacies.

Where an employee promotes a pharmaceutical product to a physician, but cannot lawfully transfer any quantity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase and cannot lawfully obtain from the physician a binding commitment to prescribe it, the employee does not make a sale under the Fair Labor Standards Act (FLSA), according to the 2nd U.S. Circuit Court of Appeals, and therefore cannot be deemed exempt as an outside salesperson.

In making its decision, the District Court reasoned that patients were unable to obtain Novartis’ drugs without a prescription; therefore, physicians were the appropriate targets of the reps’ sales efforts and so they “made sales in the sense that sales are made in the pharmaceutical industry.”

While acknowledging that the physician is “an essential step in the path that leads to the ultimate sale of a Novartis product,” the 2nd Circuit viewed what occurred between physicians and reps as less than a “sale,” thereby disqualifying reps as outside salespeople within the meaning of the FLSA.

For additional information about overtime pay and general employment inquiries, contact FHWN attorney Melinda Balian.