In a strong victory for Plaintiffs' rights, on July 6, 2010, the Second Circuit Court of Appeals overturned the District Court's ruling that Pharmaceutical Sales Representatives were exempt pursuant to the outside sales exemption and/or the administrative exemption. In overruling the District Court, the Second Circuit Court of Appeals held that the act of promoting sales, rather than obtaining commitments to buy, did not constitute sales activity within the meaning of the Fair Labor Standards Act.
In this instance pharmaceutical sales representatives were actually prohibited from making sales, because the sale required a valid prescription, which the sales representatives could not issue. Rather, the Court found that sales representatives' duties revolved around increasing physicians' awareness of Novartis' products, conducted during meetings generally lasting less than five minutes, and that act could not be construed as obtaining a commitment to buy.
Further, the Court found that because sales representatives performed low-level, discretionless marketing work, Novartis could not rely on the administrative exemption to avoid paying its sales representatives overtime compensation. Because sales representatives did not have the authority to formulate, affect, interpret or implement Novartis' management policies or operating practices, nor could they commit Novartis in matters that have a significant financial impact, the sales representatives were eligible for overtime compensation for weeks in which they work more than 40 hours.
To be properly classified as exempt under the outside sales exemption, an employee's primary duty must be that of making sales within the meaning of Section 3(k) of the Fair Labor Standards Act (FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or consumer. Such outside salespersons must be customarily and regularly engaged away from the employer's place or places of business in performing their sales activities. Salespersons who remain at the company's office will generally not be considered exempt from the right to receive overtime, regardless of how they are paid (salary, commission, hourly, etc...).
Further, to be administratively exempt, employees must 1) earn a salary of at least $455.00 per week; and 2) his or her primary duty must be "the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer's customers," and 3) his or her "primary duty" must "include the exercise of discretion and independent judgment with respect to matters of significance."
