Wednesday, January 21, 2009

Outside Sales Reps Not Subject To FLSA Overtime Provisions

In Novartis Wage and Hour Litigation (S.D.N.Y. Docket No. 06-MD-1794, Decided 1/12/09), the Southern District of New York held that members of a consolidated class action, who were outside pharmaceutical sales representatives, were not entitled to overtime pay under the Fair Labor Standards Act. (the "FLSA"). The Plaintiffs were employed by Novartis in various States (including New York and California), and sued claiming they were entitled to overtime under the FLSA as well as corresponding State wage and hour laws.

In granting Defendant's motion for summary judgment (and denying Plaintiffs' similar motion), the Court held that Plaintiffs, as outside sales representatives, were exempt from the FLSA's overtime requirements. To qualify for the outside sales employee exemption: (1) the employee’s primary duty must be making sales (as defined in the FLSA), or obtaining contracts or orders for services or the use of facilities for which a consideration is paid; and (2) the employee must be customarily and regularly engaged away from the employer’s place or places of business.

In Novartis, the Court held that Plaintiffs were exempt because they did not work under the direct supervision of the employer, and were compensated for the sales they made by means of incentive payments; these incentive payments were additions to their base salaries. Among other things, Plaintiffs called on physicians to provide information about the employer's pharmaceuticals, planned their own daily schedules in deciding when to visit each physician whose name appeared on a target list, had discretion with respect to utilizing the employer's prepared "scripts" and supporting materials, could tailor their presentations to each individual physician based upon a number of variables, worked out of their own homes rather than the employer's offices, and spent most of their day traveling in company-provided vehicles to visit physicians on their target lists. In short, Plaintiffs exercised sufficient independence and discretion to fall within the FLSA exemption.

The Court further held that even if Plaintiff's did not fall under the outside sales exemption, they would be exempt from overtime payments since they satisfied the test for exempt, administrative employees under both the FLSA and New York law. Specifically: (1) the average weekly salary of each Plaintiff was nearly four times the statutory minimum of $455 per week; (2) Plaintiffs engaged in work that was directly related to the management or general business operations of their employer and which was not manual labor; and (3) Plaintiffs exercised discretion and independent judgment with respect to matters of significance.

The Novartis case is an excellent primer with respect to exemption issues under the FLSA as well as New York and California law. It is recommended reading for all with an interest in these types of matters.

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