Second Circuit Court of Appeals Issues FLSA Exemption Rulings in Phrama Sales Rep Class Actions

In In re Novartis Wage and Hour Litigation, --- F.3d ----, 2010 WL 2667337 (2nd Cir., July 6, 2010) the Court of Appeals for the Second Circuit reversed a trial court order granting summary judgment on grounds that the putative class members, pharmaceutical sales representatives, are exempt from the requirements of the Fair Labor Standards Act ("FLSA") as outside salespeople and/or administrative employees.

The Second Circuit held that the Department of Labor ("DOL") regulations "define and delimit the terms used in the statute; that under those regulations as interpreted by the Secretary, the Reps are not outside salesmen or administrative employees; and that the Secretary's interpretations are entitled to 'controlling' deference." Slip op. at 7.

The Court held that the class members are not exempt as outside salespeople because they do not make sales:

In sum, where the employee promotes a pharmaceutical product to a physician but can transfer to the physician nothing more than free samples and cannot lawfully transfer ownership of any quantity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase, and cannot lawfully even obtain from the physician a binding commitment to prescribe it, we conclude that it is not plainly erroneous to conclude that the employee has not in any sense, within the meaning of the statute or the regulations, made a sale.

Slip op. at 11.

The Court held that the class members are not administrative employees because their “primary duty” does not “include the exercise of discretion and independent judgment with respect to matters of significance."

Comparing the record as to the Reps' primary duties against the illustrative factors set out in § 541.202(b), for example, we see no evidence in the record that the Reps have any authority to formulate, affect, interpret, or implement Novartis's management policies or its operating practices, or that they are involved in planning Novartis's long-term or short-term business objectives, or that they carry out major assignments in conducting the operations of Novartis's business, or that they have any authority to commit Novartis in matters that have significant financial impact.

Slip op. at 14.

In an unpublished companion case, Kuzinski v. Schering Corp., 2010 WL 2669304 (2nd Cir., July 06, 2010), the Court affirmed a District Court order denying the defendant's motion for summary judgment on the outside sales exemption.