On January 24, 2012, the Southern District of New York preliminarily approved a settlement in In Re: Novartis Wage and Hour Litigation, which will pay pharmaceutical sales representatives (“Sales Reps”) $99 million. The case was originally filed in 2006 and affects over 7,000 current and former Sales Reps.
As I discussed in an earlier entry, in July 2010, the Second Circuit determined that the “outside sales exemption” was not applicable to Novartis’ Sales Reps because they did not “sell” or make any “sales.” Rather, the Sales Reps were responsible for promoting drugs to physicians, providing information, and arranging events, such as lunches and speaking engagements. The Second Circuit’s decision created shock waves throughout the pharmaceutical industry as drug companies have historically treated Sales Reps as exempt employees. Novartis appealed the Second Circuit’s decision, and in February 2011, the United States Supreme Court denied Novartis’ petition for review.
All is not lost, however, for pharmaceutical companies. On February 14, 2011, the Ninth Circuit affirmed the District of Arizona’s ruling in Christopher, et al. v. SmithKline Beecham Corp., that held a proposed class of pharmaceutical sales representatives to be exempt from overtime pay pursuant to the “outside sales exemption.” In November 2011, the Supreme Court agreed to review the case, and hopefully, will conclusively answer the question of whether pharmaceutical sales representatives are exempt employees.
In the meantime, drug companies should be wary about classifying sales representatives as exempt if they do not “sell” or make any “sales,” and should measure their actual duties against the requirements of the exemption.