Novartis Settles Overtime Case on Behalf of Pharmaceutical Sales Representatives for $99 Million

| Jan 25, 2012 | Wages & Overtime |

Novartis agreed to pay $99 million to settle the claims of a class of its pharmaceutical sales representatives (“pharma reps”) who alleged that they were denied overtime pay. See In re Novartis Wage & Hour Litig., No. 06 md 01784 (S.D.N.Y.). District Judge Paul Crotty of the Southern District of New York gave preliminary approval to the proposed settlement on Tuesday, January 24, 2012. The final approval hearing will take place on May 31, 2012.

The Novartis case is one in a series of cases brought by pharma reps around the country. Pharma reps are employees tasked with visiting doctors and providing information about their company’s drugs in order to convince the doctors to prescribe the drugs to their patients. They may hand out information about clinical studies, answer questions about insurance coverage, and/or leave samples. Pharma reps, however, do not actually sell pharmaceutical products to the doctors because such sale of drugs is against the law. Pharma reps’ days can be long, consisting, for example, of nine hour days out in the field and occasional evening work.

The pharmaceutical industry has until now generally taken the position that it need not pay its pharma reps overtime pay under the Fair Labor Standards Act (“FLSA”) or the state-law counterparts because they are “outside sales” people and/or “administrative” employees who are exempt from the requirements of those laws.

The Second Circuit rejected this position in Novartis. See In re Novartis Wage & Hour Litig., 611 F.3d 141 (2d Cir. 2010). The Second Circuit held that pharma reps do not fall under the outside sales exemption because they do not actually make sales. See id. at 150-54. In coming to that conclusion, the court gave deference to the Secretary of Labor’s interpretation of the exemption, as expressed in the regulations and in an amicus brief that the Secretary had filed with the court. See id. The court also held that the administrative exemption did not apply to the Novartis pharma reps because they were not allowed to exercise either discretion or independent judgment in the performance of their duties. See id. at 155-157.  (Outten & Golden LLP co-authored an amici curiae brief in support of the plaintiffs-appellants on behalf of the National Employment Lawyers Association and the National Employment Law Project.)

In a similar case against GlaxoSmithKline last year, however, the Ninth Circuit refused to defer to the Secretary’s interpretation and adopted a position contrary to the Second Circuit-that pharma reps do fall under the outside sales exemption. See Christopher v. SmithKline Beecham Corp., 635 F.3d 383 (9th Cir. 2011). The Supreme Court granted certiorari and agreed to review the split between the Second and Ninth Circuit decisions. The issue is currently being briefed in the Supreme Court and will be heard this Term.

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