Labor & Employment Law

Further Confusion --- The Split in Authority Regarding the Exempt Status of Pharmaceutical Sales Representatives

By Keith Reinfeld

In early January, I posted an entry regarding the exempt status of pharmaceutical sales representatives. In the past several months, there have been several significant developments with respect to this issue.

On February 14, 2011, the Ninth Circuit affirmed the District of Arizona's ruling in Christopher, et al. v. SmithKline Beecham Corp., that a proposed class of pharmaceutical sales representatives ('Sales Reps') were exempt from overtime pay pursuant to the 'outside sales exemption.'

In affirming the District of Arizona's decision, the Ninth Circuit acknowledged that the duties of Sales Reps are the 'functional equivalent' of making an outside sale in that they 'makes sales by obtaining commitments to prescribe…drugs from physicians. They are credited with those sales and compensated accordingly by means of incentive payments.' The plaintiffs have filed a petition for rehearing to overturn the decision.

The Ninth Circuit's decision in Christopher is in direct contradiction to the Second Circuit's stance on the applicability of the 'outside sales exemption' to Sales Reps. Indeed, in cases against Novartis and Schering Corp., the Second Circuit determined that Sales Reps do not fall within the 'outside sales exemption' because they do not 'sell' or make any 'sales.' Rather, the Second Circuit held that the Sales Reps are responsible for promoting and marketing drugs rather than actually selling them. On February 28, 2011, the United States Supreme Court denied the petition by Novartis and Schering Corp. to review the decision.

This issue will likely have to decided by the United States Supreme Court due to the split in authority among circuit courts. Moreover, the exempt status of Sales Reps will likely become further muddled as there are cases pending in the Seventh Circuit, Connecticut, Florida, and Ohio.

In the meantime, drug companies should be wary about classifying Sales Reps as exempt if they do not 'sell' or make any 'sales.'
 

Full post as published by Wage & Hour - Development & Highlights on March 11, 2011 (boomark / email).