What Sale? Drug Reps Challenge the Applicability of FLSA's Outside Sales Employee Exemption to Them

Virtually every big pharma company has been or is being sued for allegedly violating the FLSA and applicable state wage and hour laws in collective actions brought by former and/or current drug company sales representatives. The dispute focuses on the meaning of “outside sales employees” under the FLSA, with drug reps claiming that their job duties never actually include a “sale,” thus rendering the exemption inapplicable.

The general rule for “outside sales employees” is that the employee’s primary duty is

• making sales within the meaning of the 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 customer.

The exemption further requires that the employee “customarily and regularly” be engaged in this primary duty away from the employer’s place(s) of business. Under the FLSA, “sales” can be of services as well as commodities, and is broadly defined. Drug reps argue that they themselves are never part of a sale of the products they promote since they only interact with physicians, not with the ultimate purchaser of their products - patients - who take the prescription received from their physician to a pharmacy for filling and purchase. These layers of people and companies, drug reps assert, render the exemption inapplicable to the drug reps, allowing them to seek overtime wages for their otherwise uncompensated long hours. Unsurprisingly, big pharma employers have disagreed, arguing that drug reps are hired for sales-based positions, based on their past sales experience and training, and paid according to commissions reflective of the total amount of the products sold in the rep’s territory or region. Thus far, courts have sided with the employers granting summary judgment against the drug reps finding that the purpose of the drug reps work is a sale of a product and the physician, through prescriptions, control these sales.

Currently, this issue is the subject of appeals to the Ninth Circuit from three cases previously heard in the United States District Court for the Central District of California and also the subject of a Special Report by the Bureau of National Affairs, Inc. issued on March 26, 2008. Given the unpredictable nature of the Ninth Circuit, pharmaceutical companies should expect some surprises or challenges in the coming months.