4.27.06

Client Bulletin # 362

A pharmaceutical representative in New Jersey is suing Novartis for $375 million, claiming that she and her fellow “reps” are entitled to back overtime pay and related damages. She’s claiming that, because the reps did not actually sell product to the doctors they called on, they did not qualify for the “outside sales” exemption to the overtime provisions of the Fair Labor Standards Act.

As hyper-technical as it sounds, she could have a case.

The FLSA provides numerous exemptions from its minimum wage and overtime requirements, one of which applies to outside sales employees – that is, employees whose primary duty is selling products or services, and who are customarily and regularly engaged away from their employer’s place of business when performing their primary duty. This exemption has been part of the FLSA for decades (although it recently underwent some relatively minor revisions in August 2004 when the U.S. Department of Labor issued revised “white-collar exemption” regulations).

One of the core requirements of the outside sales exemption is that the employee is engaged in the “making of sales,” or in obtaining orders or contracts for services or the use of facilities.

According to the plaintiff’s allegations, Novartis’s pharmaceutical reps call on health care providers but do not directly sell product. Instead, they provide promotional material, drop off literature or drug samples, pitch the benefits of the company’s drug products, and generally market the company’s offerings. This type of work is considered “promotional work” under the outside sales regulations, and it may or may not be deemed to be “exempt” work. The regulations say that promotional work that is “incidental to and in conjunction with” the employee’s own outside sales or solicitations is exempt work, but if “incidental to and in conjunction with” sales made by someone else, it is non-exempt work.

As most employers are aware, the popularity of FLSA lawsuits, and particularly collective actions on behalf of large classes of employees, has been increasing dramatically. Given our litigious world, employers who rely on the “outside sales” exemption should carefully review job duties and responsibilities to ensure that they are consistent with the requirements of the exemption.

And there is one ray of sunshine: even if your “marketing and promotion” employees fail to qualify for the “outside sales” exemption, they may qualify for the “administrative” exemption instead. The requirements for the administrative exemption are different, but if satisfied, the result will be just as good – the employees will be exempt from the minimum wage and overtime requirements of the FLSA.

If you have any questions regarding the FLSA’s exemption provisions, or need advice on general wage and hour compliance matters, please feel free to contact any member of Constangy’s Wage & Hour Practice Group, or the Constangy attorney of your choice.

Constangy, Brooks & Smith, LLC has counseled employers, exclusively, on labor and employment law matters since 1946. The firm represents Fortune 500 corporations and small companies across the country. More than 100 lawyers work with clients to provide cost-effective legal services and sound preventive advice to enhance the employer-employee relationship. Offices are located in Georgia, South Carolina, North Carolina, Tennessee, Florida, Alabama, Virginia, Missouri, and Texas. For more information about the firm's labor and employment services, visit www.constangy.com, or call toll free at 866-843-9555. 

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