Q. Are pharmaceutical reps required to receive overtime pay?
A. Yes. Under the Fair Labor Standards Act, a federal law that applies everywhere in the United States, the default rule is that all employees are entitled to receive overtime pay. When Congress created the FLSA in 1938—in the midst of the Great Depression—it intended to impose a minimum wage and to shorten the workweek with a maximum hours requirement. The maximum hours part of the law says that no employer shall employ an employee for more than 40 hours in a workweek—without paying time and a half the regular rate of pay for the hours worked over 40. The Congress also created exemptions to the maximum hour requirement for certain “white collar” employees. To claim an exemption, the employer must prove that the employee is clearly and unmistakably subject to an exemption.
Pharmaceutical companies hire representatives to educate doctors about the drugs they manufacture and to encourage the doctors to prescribe those drugs to their patients. The representatives receive commissions when the patients of the doctor fill a prescription for the drug at a pharmacy. Doctors do not buy anything from the pharmaceutical rep. The pharmaceutical companies usually develop an elaborate script for the reps to use in presenting to the doctor. They provide the reps with literature to leave with the doctors, they encourage the reps to leave samples of the drugs with the doctors and they provide the reps with alternative ways to present the drug to the doctor depending on what concerns or questions the doctors have about the drug. The drug company will usually assign a geographic territory to the rep and require the rep to visit a specific minimum number of doctors in a day or a week.
The pharmaceutical representatives who follow their employer’s system usually work long hours. Most of the drug companies have failed to pay the overtime required by the FLSA to their representatives even though they usually work more than 40 hours in a workweek. Remember, the employer has the burden to prove that an employee is subject to an exemption from the requirement to pay overtime. If the employer cannot establish an exemption, the employee must be compensated according to the law.
Why do the drug companies fail to pay overtime to pharmaceutical reps? The drug companies usually have two answers. First, they say the reps are engaged in “outside sales” which is an exemption from the overtime law. Second, they say that the reps are administrators of the business, which is another exemption.
But the Fair Labor Standards Act defines “sales” as “obtaining orders.” The reps do not obtain orders from doctors. In the United States, it’s illegal to sell certain drugs except through a pharmacy with a doctor’s prescription. The reps may be educating and encouraging the doctors to prescribe medications, but they are not “obtaining orders” from the doctors. Most courts that have considered this issue have found that where there is an intervening person between the employee and the person who decides to buy, the outside sales exemption does not apply. The pharmaceutical company cannot rely on the outside sales exemption to refuse overtime pay to its pharmaceutical representatives.
The drug companies then fall back to the “administrative” exemption to deny overtime pay to their reps. The administrative exemption is one of the most complicated exemptions to understand. Generally, if you consider that a business is composed of people who work “in the business” and other people who work “on the business,” the people who work on the business are administrative. Administrative workers do things that exist in all businesses, like accounting, marketing, human resources, management and other things like that. To be an exempt administrative worker, the employee must have the authority to make independent decisions “on matters of significance.” The drug companies have taken the position in litigation that their pharmaceutical representatives are engaged in “marketing” and that they have the authority to exercise independent discretion and judgment on matters of significance to the business because they can decide who they will present the products to, how they will present the products and when they will present the products. That’s marketing, they argue, and the reps are making all the significant decisions on how to market the company’s drugs.
The administrative argument sounds like it could be a plausible way for the drug companies to get around the overtime law. The problem with the argument is that the companies usually can’t prove that they are “clearly and unmistakably” entitled to the exemption. Company personnel documents usually show that the reps have a manager who occasionally rides along with them and critiques their performance, stresses how many appointments they need to make, what doctors and hospitals to focus on and how many samples they must give out, etc. Company documents also show that many of the drug companies who sometimes stand to make billions of dollars a year on a drug they spent billions of dollars to develop and bring to market, do not actually leave the significant decisions on how to market the products to the individual pharmaceutical representatives. The representatives may use independent discretion and judgment on many things, but they usually do not have the authority to make significant decisions on how to market the companies’ products.
Recently, the Second Circuit Court of Appeals—the first circuit to consider the problem of pharmaceutical representatives—found that the employer had not met its burden to prove that it was entitled to claim that reps were exempt from the overtime law. See In re Novartis Wage and Hour Litigation, No. 09-0437-cv (July 6, 2010). http://case.lawmemo.com/2/novartis.pdf The court noted that the reps were paid an average of $91,000 in 2005 (many earned well over $100,000) and that they used a significant amount of skill in their jobs to execute the company’s system. But the skill and compensation to the reps for exercising high skills were not excuses allowing for the company to avoid the overtime law.
Don’t expect the pharmaceutical companies to start paying overtime to its reps any time soon or for them to stop fighting the cases that are still pending. But the facts of most of the cases are against the companies and they will have a hard time proving they are entitled to take an exemption.
No comments:
Post a Comment