Appeals Court Ruling on OT Pay to Sales Reps Stands

A federal appeals court ruling that drug company sales representatives are entitled to overtime will stand after the U.S. Supreme Court’s refusal Feb. 28 to reconsider a ruling against Novartis Pharmaceuticals Corp. and Merck & Co.

The companies sought to overturn a decision by the U.S. Court of Appeals for the 2nd Circuit in New York that their salespeople are not exempt from overtime rules under the federal Fair Labor Standards Act—a claim supported by the U.S. Labor Department, which filed a “friend of the court” brief supporting the sales representatives’ claims for overtime pay. The law requires the payment of 1½ times a worker’s hourly wage for more than 40 hours of work in a week.

The 2nd Circuit’s July 2010 ruling affects about 2,500 current and former sales representatives employed by Novartis between March 23, 2000, and April 7, 2007, who are suing for unpaid overtime.

In a news release, lawyer David Sanford called the Supreme Court’s refusal to review the case “a victory for thousands of the company’s reps who labored long and hard for Novartis—often working over 70 hours a week—and yet were denied the overtime pay that is their due.” Sanford is a partner at Sanford Wittels & Heisler, which represented the Novartis workers. 

The company has argued that its sales representatives fall under exemptions to the FLSA for outside salespeople and administrative workers. The FLSA establishes minimum wage and overtime pay standards for private and public sector employees. But the workers argued that the outside salesperson exemption doesn’t apply to them because they promote a product rather than close a sale and that they don’t exercise enough independence to qualify for administrative exemption.

“The administrative exemption is the most invoked defense in job misclassification cases,” says Charles Joseph, a partner at Joseph, Herzfeld, Hester and Kirschenbaum, in New York, which filed a similar lawsuit against Bristol-Myers Squibb Co. in November 2010. “The 2nd Circuit ruling and the Supreme Court’s refusal to review the case says that this exemption is harder to meet than most companies thought. We’ve seen a lot of title inflation in recent years, which we think is an attempt to classify people as exempt when they are not. Being salaried doesn’t mean that you’re exempt. It depends on what your duties are not your job title.”

Drug companies have been facing an onslaught of legal challenges from salespeople seeking overtime pay since 2006 when Sanford Wittels & Heisler originally filed its lawsuit against Novartis. The recent appellate court decision in the Novartis case and the Supreme Court’s refusal to reconsider it means that employers will have to be careful in classifying exempt and nonexempt employees, according to Lonnie Golden, a professor of economics and labor studies at Penn State University.

“These companies were definitely pushing to the limit in the way they classify employees. They were assuming that if there was a share of duties that they could claim under these exemptions, they were covered. But it’s not that simple. Employers will have to be very careful in making these classifications. Either they will have to make employees truly exempt or fold them into the nonexempt workforce.”

Rita Pyrillis is Workforce Management’s senior writer. To comment, e-mail rpyrillis@workforce.com.