Two Pharmaceutical Companies Successfully End Wage and Hour Suits by Their Sales Representatives

In the past weeks, Johnson & Johnson and Novartis each won summary judgment in cases brought by their respective sales representatives who had alleged that the sales reps were nonexempt under the FLSA and state law. Despite the clear victories, the Courts’ opinions offer different rationales for exemption depending on whether the outside sales representative exemption or the administrative exemption is used. This issue could make its way to the highest court in the land in the near future to resolve the ambiguity facing employers.

Johnson & Johnson had been sued by a former sales rep of a J&J subsidiary, Ortho-McNeill Pharmaceutical, in the United States District Court for the District of New Jersey in the case Patty Lee Smith v. Johnson & Johnson, case no. 06-cv-04787. In granting J&J’s motion for summary judgment, Judge Linares agreed with J&J’s assertion that its pharmaceutical sales reps were not misclassified and were exempt under the administrative exemption. Additionally, the plaintiff had brought claims based on actions taken more than three years prior that time-barred. Judge Linares recognized the lack of clarity in how to treat pharmaceutical sales reps under the FLSA, stating that “Smith’s position of Senior Professional Sales Representatives occupies a somewhat ambiguous zone under the FLSA.” Finding the logic of the Ruggieri case persuasive on the issue of how the FLSA outside sales exemption is applied, the Court denied that Ms. Smith could be considered an outside sales representative as envisioned by statute and regulation under the FLSA. Instead, the Court focused on the exemption for employees acting in an administrative capacity and found that J&J met its burden to demonstrate that Smith’s role was an “administrative advertising and marketing position with a substantial impact on J&J.” The Court noted the administrative exemption had been used in the Amendola case [click here for our blog entry on the Amendola case]. In closing, the Court noted that its granting of summary judgment for J&J mooted Ms. Smith’s motion to certify the action as a collective FLSA action. To read the Court’s opinion in the Smith case, click here.

Novartis Pharmaceutical Corp. similarly won summary judgment to beat a consolidated class action brought by current and former pharmaceutical sales representatives of Novartis in the United States District Court for the Southern District of New York entitled In Re Novartis Wage and Hour Litigation, case no. 06-MD-1794(PAC). Like J&J, Novartis argued that its pharmaceutical sales reps were exempt from overtime pay as outside sales representative and administrative employees under the FLSA and applicable state law (plaintiffs worked in either New York, California, or other states and were divided into group based on where they provided services for Novartis). The Court’s opinion provides a thoughtful summary of the potentially applicable exemptions and the various sources of interpretations (regulations, DOL guidance, and case law like the 2008 Ruggieri and Amendola decisions) and can be read by clicking here. Ultimately, the Court found that the pharmaceutical sales reps were exempt from overtime payment both on a narrow reading of the outside sales representative exemption (as applicable under the FLSA, California law, and New York law) and as administrative employees (under the FLSA, New York and California as well). The Court declined to reach the issue of whether the pharmaceutical sales reps were also exempt under the highly compensated employee exemption.

To view our blog entry from June 24, 2008 regarding the applicability of FLSA exemptions to pharmaceutical sales reps, click here.