Federal Courts Continue to Grapple with FLSA Exempt Status of Pharmaceutical Sales Representatives

Over the past several months, federal courts across the country have continued to grapple with whether pharmaceutical sales representatives are exempt from the requirements of the Fair Labor Standards Act (FLSA).  In July 2010, the Second Circuit decided In re Novartis Wage & Hour Litigation, 611 F.3d 141 (2d. Cir. 2010), holding that Novartis pharmaceutical sales representatives are not exempt from FLSA.  (For a detailed discussion of the Novartis case and other earlier decisions, see an earlier article.)  Since then, the Ninth Circuit has ruled that GlaxoSmithKline properly classified its pharmaceutical sales representatives as exempt from the FSLA's overtime requirements, creating a circuit split; federal courts have been asked to reconsider earlier rulings in light of the Novartis decision, with mixed results; and several new lawsuits have been filed, challenging the exempt status of pharmaceutical sales representatives.

Christopher v. SmithKline Beecham Corporation

On February 14, 2011, the Ninth Circuit decided Christopher v. SmithKline Beecham Corp., No. 10-15257, 2011 WL 489708 (9th Cir. Feb. 14, 2011), holding that the GlaxoSmithKline pharmaceutical sales representatives are exempt from the FLSA's overtime requirements under the "outside salesman" exemption.  Contrary to the Novartis case, which held that the Novartis pharmaceutical sales representatives did not actually "make sales" as required for the exemption, the Christopher court looked to the "structure and realities of the heavily regulated pharmaceutical industry" and held that the sales representatives – sometimes referred to in the industry as "detail" men and women because they provide doctors with details about the prescription drugs manufactured by their employer – do qualify for the outside sales exemption.  Because the district court only addressed the outsides sales exemption, the Ninth Circuit did not consider whether the sales representatives are exempt under the administrative exemption.

The Ninth Circuit also departed from the Novartis decision in its refusal to grant deference to the amicus brief submitted by the U.S. Department of Labor (DOL) in favor of the plaintiffs.  Quoting the U.S. Supreme Court, the Christopher court noted that an "agency does not acquire special authority to interpret its own words when, instead of using its expertise and experience to formulate a regulation, it has elected merely to paraphrase the statutory language."  Because the DOL's interpretation of "making sales" merely "parroted" the statutory language, the Ninth Circuit declined to grant the DOL deference, and in fact found its interpretation to be erroneous and inconsistent with its own regulations and practices.

Novartis and Christopher thus create a clear split among the federal circuit courts, increasing the likelihood that the Supreme Court may ultimately consider the exempt status of pharmaceutical sales representatives. 

Courts Asked to Reconsider Rulings

In the wake of the DOL's briefing in the Novartis decision and that decision itself, some courts have been asked to reconsider earlier rulings pertaining to the exempt status of pharmaceutical sales representatives, with mixed results.

Harris v. Auxilium Pharmaceuticals, Inc., No. 4:07-cv-3938, 2010 WL 3817150 (S.D. Tex. Sept. 28, 2010).  In Harris, the court originally granted partial summary judgment to Auxilim, finding that Harris and other "medical sales consultants" were properly classified as exempt under both the administrative and outside salesman exemptions.  However, after the DOL's amicus brief in the Novartis case, Harris asked the court to reconsider its decision.  While the court was considering the motion, the Second Circuit decided Novartis.  After reviewing the applicable authority, the Harris court adopted the reasoning of the Novartis decision and vacated its earlier order.  The court noted that other courts have reached opposite results, but it ultimately did not find those cases to be a "reasoned counterweight" to the Novartis decision because they did not feature briefing from the DOL.  

Schaefer-LaRose v. Eli Lilly & Co., No. 1:07-cv-1133-SEB-TAB, 2010 WL 3892464 (S.D. Ind. Sept. 29, 2010).  The court in Schaefer-LaRose originally granted summary judgment to Eli Lilly, finding that the plaintiff, a sales representative in New York state, fell under both the outside sales and administrative exemptions.  In light of the DOL's amicus brief in the Novartis case, the plaintiff filed for reconsideration.  The court denied the motion for reconsideration, stating: "Our decision cannot be a swinging pendulum, vacillating back and forth as each new ruling addressing this question is handed down by some court or another across the nation."

New Cases Filed

Finally, several employers have been sued for allegedly misclassifying their pharmaceutical sales representatives since the Novartis decision, ensuring that the issue will continue to percolate through the courts for the foreseeable future.  Recently filed cases include:

• Savchuk v. Astellas US, LLC, No. 8:10-dv-01962-JSM-EAJ (M.D. Fla., filed Sept. 3, 2010)
• Jones v. Takeda Pharmaceuticals North America, Inc., No. 1:10-cv-06240 (N.D. Ill., filed Sept. 29, 2010)
• Bethune v. Bristol-Myers Squibb Co., No. 10-CIV-8700 (S.D.N.Y., filed Nov. 16, 2010)
• Kaiser v. Daiichi Sankyo, Inc., No. 1:10-cv-918 (S.D. Ohio, filed Dec. 21, 2010)

We will continue to monitor these and other cases as they develop.

To avoid potential liability for misclassification under the FLSA, employers may wish to consult with outside counsel to develop a comprehensive compliance strategy.