Are Pharmaceutical Companies Losing the Exemption Battle?

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Recently, another group of pharmaceutical sales representatives successfully demonstrated that they are not exempt from overtime under the FLSA. Kuzinski, et al., v. Schering Corp Focusing on the administrative exemption, the District Court of Connecticut held that the sales representatives’ work was not directly related to Schering’s management or general business operations and they lacked the necessary exercise of discretion and independent judgment to meet the requirements of the exemption. The sales representatives did not directly sell pharmaceutical products, instead individualizing Schering’s canned sales pitch to promote certain products to identified customers. At the end of the day, the sales representatives simply used the core messages and promotional strategies developed by Schering, rather than developing those messages and strategies themselves.

Litigation Background

Pharmaceutical companies have traditionally classified sales representatives as exempt under the outside sales exemption, but have recently faced difficulty convincing courts that pharmaceutical representatives meet this exemption since they do not make “sales” in the traditional sense. While the results have been mixed at the district court level, the most noteworthy case, the Novartis wage and hour litigation, put a hole in the companies’ defense. Affirming the district court, the Second Circuit concluded that the Novartis sales representatives do not make sales and, therefore, do not qualify for the outside sales exemption. The U.S. Supreme Court recently declined to review that decision and the holding remains.

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