Labor & Employment Law

Promoting A Product Without The Ability to Close a Sale is not Exempt "Outside Sales" Activity -- In re Novartis Wage and Hour Litigation

Pharmaceutical representatives (aka "drug reps") are an unusual breed.  Their job duties are essentially the same as travelling salesmen -- i.e., visiting potential customers to sing the praises of their employer's products.  But it is only after these visits that the doctors will write prescriptions for their individual patients, which will be filled by independent pharmacists.  Unlike a true salesperson, drug reps therefore cannot actually close a sale.

In In re Novartis Wage and Hour Litigation, the Second Circuit determined that this was a crucial distinction which prevented Novartis from avoiding FLSA overtime payments under the "outside sales" exemption.  As the court explained, the essence of a salesperson is "obtaining commitments to buy" a product.  Merely proving information or promoting demand for a product is insufficient:

In sum, where the employee promotes a pharmaceutical product to a physician but can transfer to the physician nothing more than free samples and cannot lawfully transfer ownership of any quantity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase, and cannot lawfully even obtain from the physician a binding commitment to prescribe it, we conclude that it is not plainly erroneous to conclude that the employee has not in any sense, within the meaning of the statute or the regulations, made a sale.

The Novartis decision is a reminder of the important distinction between "sales" and "promotion" work.  Promotion work can be counted toward satisfying a sales-based exemption only when it is done in furtherance of a salesperson's efforts to generate her own commissioned sales.  It can also be counted toward the administrative exemption if an employee also exercises "independent judgment and discretion" in important matters. 

But Novartis's drug reps fell short of both exemptions because they had no authority to close sales and no authority to make any important administrative decisions.  

Full post as published by California Labor & Employment Defense Blog on July 12, 2010 (boomark / email).