by David W. Garland

During the last year, courts have reached different conclusions as to whether outside sales representatives of pharmaceutical companies are exempt and therefore not entitled to receive overtime under the Fair Labor Standards Act. These cases turned on the specific duties assigned to the sales representatives by their employers and point out that pharmaceutical companies need to review carefully the responsibilities of these employees.

In Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir. 2010), decided by the Court of Appeals for the Third Circuit in February, the court affirmed the district court’s holding that the pharmaceutical sales representative (Patty Smith) was exempt from overtime pay under the administrative employee exception. Smith’s position required her to visit a targeted list of doctors to promote one of J&J’s drugs, but Smith developed her own itinerary and could elect to visit some doctors more frequently. Smith was required to plan and prioritize her responsibilities in a manner that maximized business results, she was the “expert” on her own territory, and was supposed to develop a strategic plan to achieve higher sales. Although she used a message prepared by J&J and pre-approved visual aids when meeting with doctors, she had some discretion in deciding how to approach the conversation. At her deposition, Smith made perhaps an admission fatal to her claim, conceding that “[i]t was really up to [her] to run the territory the way [she] wanted to.”     

Based on Smith’s specific duties, the court concluded that her position required her to form a strategic plan designed to maximize sales in her territory. The court explained that this requirement satisfied the “‘directly related to the management or general business operations of the employer’ provision of the administrative exemption because it involved a high level of planning and foresight.” The Third Circuit also held that since Smith executed nearly all of her duties without direct oversight – and she described herself as “the manager of her own business who could run her won territory as she saw fit,” she satisfied the exercise of discretion and independent judgment prong of the administrative exemption.    

The Second Circuit, in In re Novartis Wage & Hour Litigation, 611 F.3d 141 (2d Cir. 2010), subsequently reached a different conclusion after considering the duties of the sales representatives in that case. Novartis’ sales representatives typically met with physicians for about five minutes, during which they described the benefits of Novartis’ products, provided free samples, and encouraged the physicians to prescribe Novartis drugs to patients. Novartis carefully controlled the content of these “sales” pitches, and the representatives were required to deliver a “core message” from which they could not deviate. At least every couple of weeks, a district manager accompanied the sales rep on his or her visits. One of the plaintiff sales rep plaintiffs testified that they were expected to act like “robots.”

Deferring to Department of Labor regulations, the Second Circuit concluded that Novartis’s sales reps did not come within the administrative exemption because they did not have “any authority to formulate, affect, interpret, or implement Novartis’ management policies or its operating practices.” Additionally, the court found no evidence that the sales reps were “involved in planning Novartis’ long-term or short-term business objectives,” or “carr[ied] out major assignments in conducting the operations of Novartis’ business” or had “any authority to commit Novartis in matters that have significant financial impact.”

The Second Circuit also concluded that the Novartis reps did not fall within the “outside salesmen” exemption. Again deferring to the DOL regulations, the court ruled that in order to fall within the exemption, an outside sales representative’s primary duty has to be making sales or obtaining orders or contracts for services or for the use of facilities. Since Novartis’s reps were not engaged in sales – they merely promoted the drugs to physicians during brief meetings and physicians had no obligation to commit to buying anything, even where the physicians promised to prescribed a given Novartis drug, this exemption was also not satisfied.

The facts in these cases differed, which accounted in large part for the different outcomes – and J&J, unlike Novartis, had the good fortune of a plaintiff who virtually gave away her case by admitting that she could do what she wanted to do. But the differing outcomes also highlight the need for employers to review their sales programs carefully and to structure them as much as possible to satisfy one of the exemptions. Otherwise, they may find themselves with an outcome similar to Novartis.


Back to Wage and Hour Defense Blog Blog

Search This Blog

Blog Editors

Related Services



Jump to Page


Sign up to receive an email notification when new Wage and Hour Defense Blog posts are published:

Privacy Preference Center

When you visit any website, it may store or retrieve information on your browser, mostly in the form of cookies. This information might be about you, your preferences or your device and is mostly used to make the site work as you expect it to. The information does not usually directly identify you, but it can give you a more personalized web experience. Because we respect your right to privacy, you can choose not to allow some types of cookies. Click on the different category headings to find out more and change our default settings. However, blocking some types of cookies may impact your experience of the site and the services we are able to offer.

Strictly Necessary Cookies

These cookies are necessary for the website to function and cannot be switched off in our systems. They are usually only set in response to actions made by you which amount to a request for services, such as setting your privacy preferences, logging in or filling in forms. You can set your browser to block or alert you about these cookies, but some parts of the site will not then work. These cookies do not store any personally identifiable information.

Performance Cookies

These cookies allow us to count visits and traffic sources so we can measure and improve the performance of our site. They help us to know which pages are the most and least popular and see how visitors move around the site. All information these cookies collect is aggregated and therefore anonymous. If you do not allow these cookies we will not know when you have visited our site, and will not be able to monitor its performance.