Wage & Hour Litigation Blog

Supreme Court Declines to Review Status of Pharmaceutical Sales Reps. Under the Administrative or Outside Sales Exemptions

Posted in Misclassification/Exemptions

At 10 a.m. EST today, the U.S. Supreme Court announced its decision to deny certiorari in Novartis Pharmaceuticals Corp. v. Lopes et al. This surprising pronouncement means that the Court will not review the controversial decision of the U.S. Court of Appeals for the Second Circuit, reported at 611 F.3d 141, ruling that pharmaceutical sales representatives for Novartis Pharmaceuticals Corporation do not meet the criteria for either the administrative or outside sales exemptions of the FLSA and are, thus, entitled to overtime pay for work in excess of 40 hours in a week. Giving controlling deference to an amicus curiae brief filed by the Department of Labor on behalf of the plaintiffs, the Second Circuit in Novartis held that because pharmaceutical sales representatives are prohibited under federal law from actually entering into contracts to sell their employer’s prescription drug products, they do not qualify for the outside sales exemption, despite long-standing DOL acquiescence in the consistent practice in this highly regulated industry of treating these sales representatives as exempt. The court also held that the highly regulated nature of the pharmaceutical industry prevented these employees from exercising “sufficient” independent judgment and discretion to qualify for the administrative exemption.

The Supreme Court also refused to review the decision in Kuzinski v. Schering Corp., 384 Fed. Appx. 17 (2d Cir. 2010), in which the Second Circuit relied on Novartis and affirmed a district court decision determining that pharmaceutical sales representatives for Schering Corporation are not exempt under the outside sales exemption.

The petition by Novartis to the Supreme Court sought review of the following questions: (1) whether the Second Circuit’s holding that highly-paid pharmaceutical sales representatives are not covered by the FLSA’s administrative exemption or the outside sales exemption, is contrary to the statute’s text, purpose, and the DOL’s long-standing regulations; and (2) whether an agency’s break with prior interpretations of its regulations, advanced for the first time in an amicus brief, is entitled to heightened deference under prior Supreme Court precedent. This case would have marked the first time that the Supreme Court squarely addressed the “duties test” requirements of any of the FLSA’s white collar exemptions in the seventy year history of the statute.

The Second Circuit’s decisions create a circuit split with respect to each of the issues presented by Novartis’s petition for Supreme Court review. The Second Circuit’s decisions are in conflict with the Third Circuit’s view of the administrative exemption, Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir. 2010) and Baum v. AstraZeneca, 372 Fed. Appx. 246 (3d Cir. 2010), cert. denied 131 S. Ct. 332 (2010); and with the Ninth Circuit’s view of the outside sales exemption and its decision to grant no deference to an amicus brief filed by the DOL, Christopher v. SmithKline, ___ F.3d ___ (9th Cir. Feb. 14, 2011).

Please see Seyfarth Shaw’s Management Alert at http://www.seyfarth.com/MA022811/