Supreme Court Won't Review Sales Rep Overtime

In what is being hailed as a victory for sales reps, the US Supreme Court has decided not to review lawsuits in which a lower court decided that Novartis and Schering-Plough should have paid overtime to its sales teams. The move means that still other lawsuits filed against several other drugmakers are likely to yield the same outcome, possibly prompting changes in the way sales reps are compensated (see the court denialshere and here).

Here's the background: a federal appeals court last July ruled Novartis reps are not exempt from overtime provisions of the Fair Labor Standards Act and, therefore, should be paid overtime. The same court also upheld a similar decision reached two years ago against Schering-Plough by a federal court, which denied a motion to dismiss a case brought against the drugmaker by some of its sales reps (see the rulings here and here).

The decision against Novartis and Schering-Plough was made by the Second Circuit, which presides over territory where other lawsuits have been filed against Pfizer, GlaxoSmithKline, Abbott Laboratories and Bristol-Myers Squibb. As a result, the Supreme Court decision suggests that sales reps are likely to win their cases in these jurisdictions. However, this will not effect, for now, a recent ruling by the Ninth Circuit, which ruled in favor of Glaxo that sales reps do not qualify for overtime pay.

"The specter of a Supreme Court review is greatly diminished, although not eliminated, because the court could take it up with some other case in the future," says Charles Joseph, who represents sales reps in many of the lawsuits against drugmakers. "For now, the Second Circuit decision remains the law of the land in the Second Circuit. "I do not understand how these drugmakers will not have to immediately start to change their practices."

The Second Circuit found that sales reps are not exempt from overtime provisions of the Fair Labor Standards Act. The FLSA’s overtime compensation requirement doesn’t apply to employees who work as outside salespeople, but the law does require employers to pay overtime for hours worked beyond 40 hours a week, unless a FLSA exemption applies. What are those exemptions? If an employee’s primary duty is to obtain orders or contracts (as defined by the statute) and regularly does so away from the employer’s place of business.

Drugmakers argue their sales reps are, indeed, outside salespeople who close sales because the primary customer is the physician. But in 2009, the US Department of Labor added an unexpected twist to the debate by filing an amicus brief with a federal appeals court contending that a lower court was wrong to toss their lawsuit (see here).

UPDATE: In response, Andre Wyss, who heads Novartis US operations, sent a note to employees to say: "We are disappointed with the decision and are evaluating all legal options. As our primary link to customers and key contributors to the achievement of our business goals, we value the work of our sales representatives and specialists. We are disappointed with the decision and are evaluating all legal options. As our primary link to customers and key contributors to the achievement of our business goals, we value the work of our sales representatives and specialists."