What are They?: The Debate Over Whether Drug/Device Sales Reps are Exempt from Overtime Pay Continues
Health Law Update 04/17/09
The debate, whether sales representatives for drug/device manufacturers are entitled to overtime pay, continues. A federal court in Connecticut recently denied a drug manufacturer's summary judgment motion and opened the door for four drug representatives to possibly collect overtime pay.1 This ruling is further indication that, as similar cases move through the federal court system, companies are beginning to lose them and sales representatives are beginning to win.
In Kuzinski v. Schering Corp., Eugene Kuzinski and three other former Schering Corp. pharmaceutical sales representatives sued the drug manufacturer, alleging that Schering violated the Fair Labor Standards Act ("FLSA") by misclassifying them as exempt employees, and therefore they were entitled to overtime pay. The sales representatives' primary responsibilities were to develop relationships with physicians and deliver core messages about particular Schering pharmaceutical products, to persuade physicians to prescribe appropriate Schering products rather than competing products. These pharmaceutical sales representatives worked in assigned territories, where they met with medical professionals to provide them with Schering-approved, carefully scripted information and materials about Schering's pharmaceutical products. The sales representatives worked primarily outside Schering's offices, promoting Schering's products during visits to physicians' offices and attending after-hours training sessions. During their visits with physicians, the sales representatives did not enter into contracts over the price or quantity of Schering's products, obtain orders for Schering's products or get binding commitments from the physicians to purchase or prescribe Schering's products. The sales representatives received base salaries plus incentive payments that were loosely based on the number of prescriptions filled for Schering products in their respective geographic areas. Schering classified its pharmaceutical sales representatives as exempt from the FLSA's overtime pay requirements.2
Relying heavily upon on recent federal cases that bolstered the sales representatives' arguments that they should not have been classified as exempt employees and that they were entitled to overtime pay,3 the Court found as follows:
- the visits made by the sales representatives to the physicians offices did not culminate in contracts requiring physicians to write a particular number of prescriptions and Schering's sales representatives did not directly sell company products to patients;
- "the closest that Schering's [pharmaceutical sales representatives] come to consummating 'sales' is increasing the overall demand for its products," and other Schering employees negotiated the product distribution contracts with wholesalers, not physicians;
- the sales representatives helped "pave the way for sales," but their work had "no more direct" an impact than the "company's direct-to-consumer advertising;"
- the outside sales exemption did not apply to Schering's pharmaceutical sales representatives because they "undisputedly do not 'sell' or make any 'sales,' as those terms are defined in the FLSA and its implementing regulations."4
In its ruling, the Court rejected the reasoning set forth in three earlier cases won by drug companies.5 Notably, the Court in Kuzinski added that regulations promulgated under the FLSA define "sale" or "sell" to include "any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition," and Schering's representatives "do not make, or engage in, any of these things." Here, "such representatives and physicians did not have the capacity to consummate sales" because they "are barred both by law and by their employer from entering into contracts or binding commitments with physicians for the prescription of their employer's products."6
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For more details, or if you have any questions on your company's compliance policies and procedures in relation to activities of sales representatives, please contact your Quarles & Brady LLP attorney.
1Kuzinski v. Schering Corp., No. 3:07cv233, 2009 WL 807572 (D. Conn. March 30, 2009).
3 See Ruggeri v. Boehringer Ingelheim Pharmaceuticals, Inc., 585 F.Supp.2d 254 (D.Conn. 2008)(concluding that employees must "consummate sales or obtain contracts or orders" before the outside sales exemption exempts them from receiving overtime pay).
4See Kuzinski v. Schering Corp., supra note 1.
5See In re Novartis Wage and Hour Litig., 593 F.Supp.2d 637 (S.D.N.Y.2009); Yacoubian v. Ortho-McNeil Pharmaceutical Corp., No. SACV 07-127-CJC (MLGx), slip op. at 5-11 (C. D.Cal. Feb. 6, 2009); Delgado v. Ortho-McNeil Primary Care, Inc., No. SACV-07-263-CJC (MLGx), slip op. at 5-11 (C.D.Cal. Feb. 6,2009).
6See Kuzinski v. Schering Corp., supra note 1.