Second Circuit Court of Appeals Holds that Pharmaceutical Sales Representatives Were Entitled to Overtime Pay

On July 6, 2010, the United States Court of Appeals for the Second Circuit, which sits in New York City, ruled against Novartis Pharmaceuticals Corporation (“Novartis”) on claims brought by current and former pharmaceutical representatives for overtime pay. The claims were asserted under the federal Fair Labor Standards Act (“FLSA”) and state law, including New York’s Minimum Wage Act. The court’s decision affects sales representatives in New York, California and other states.


The Second Circuit rejected Novartis’s argument that the sales representatives fell within the “outside salesmen” and/or “administrative” employee exemptions to the FLSA and New York law. The sales representatives’ position was supported in court by the United States Department of Labor, which urged that the sales representatives could not be treated as outside salesmen or administrative employees, and were entitled to overtime pay at the rate of one and one-half times their normal hourly rate for time worked in excess of 40 hours per week.
In rejecting the application of the outside sales exemption to overtime pay, the Second Circuit found it significant that the sales representative did not engage in any actual sales of pharmaceuticals. Rather, the representatives’ duties involved visiting physicians with information about Novartis’s products, and encouraging the physicians to prescribe the drugs to patients. Although the representatives provided drug samples to physicians, the representatives did not engage in any sales. The Second Circuit rejected the administrative employee exemption to overtime pay because the sales representatives did not exercise sufficient “discretion” and “independent judgment” to fall within the exemption.
Although the court’s analysis focused on the requirements of the FLSA, it concluded that the laws of New York and California law were not materially different from the FLSA and, therefore, the sales representatives would be entitled to overtime pay under those laws as well. Although seemingly redundant, New York’s overtime pay laws provide a six year statute of limitations, compared with a two year (three year for willful violations) statute of limitations under the FLSA. Consequently, more sales representatives would be covered under New York’s law, and for a greater number of years. In re Novartis Wage and Hour Litigation (09-0437-cv)

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