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Employment Law

Sales Representative Overtime Lawsuits: Why the Tidal Wave of Class Action Cases Have Been So Successful

For many years, companies in the pharmaceutical industry and other industries that employ outside sales representatives assumed that their sales representatives were exempt from overtime laws because of the Fair Labor Standard’s Act’s (FLSA) “outside salesperson” exemption. However, an employer always bears the heavy legal burden of establishing that an employee is “exempt”, and the rules governing exemptions are rigid. To successfully overcome an employee’s claim for overtime, an employer must show that the employee meets all of the required elements of the specific exemption. In the case of pharmaceutical sales representations, an entire category of employees was miscategorized as exempt. The resulting litigation has resulted in enormous recoveries for employees. Here’s why sales representative overtime claims have been so successful:

Reason # 1: Selling and Promotion Are Not the Same

To satisfy the “outside salesperson” test, the employee must actually sell something. In the pharmaceutical industry, representatives visit the offices of medical providers. However, they don’t actually sell any medicines. Instead, representatives serve a role that is largely promotional. Actual sales only occur when the medical providers prescribe medicines to patients, who then make purchases from the pharmacies. Judges throughout the United States have concluded that pharmaceutical sales representatives do not actually perform sales, but instead serve a different role of “driving market share” for particular products.

Reason # 2: Sales Representatives Don’t Manage Business Operations

As a fallback argument, corporations have tried to argue that their sales representatives are exempt under the FLSA’s “administrative employee” exemption, under which employees who perform office or non-manual work directly related to the employer’s general business operations are exempt from overtime. However, this argument has been largely rejected by federal courts throughout the United States. For example, in 2011, in the case Kuzinsky v. Schering Corp., Connecticut District Court Judge Janet Bond Arterton concluded that the promotional work performed by sales representatives is “not a duty directly related to Schering’s management of general business operations”. The phrase “general business operations” has been narrowly construed by courts to include operations that affect policies, procedures or operations of the company as a whole. Under this narrow interpretation, representatives that perform marketing tasks in specific geographic areas are not considered administrative employees as that phrase is defined in the FLSA.

Reason # 3: Representatives Don’t Qualify Under the White Collar Exemption

Pharmaceutical sales representatives are usually not exempt under the “white collar” exemptions for highly compensated employees. To qualify under this exemption, an employer must show that an employee: (a) has a total annual compensation of $100,000; (b) customarily and regularly performs one or more of the exempt duties or responsibilities of an executive, administrative or professional employee; and (c) has a primary duty that includes performing office or non-manual work. 29 C.F.R. § 541.601(a)-(d). Pharmaceutical sales representatives generally do not meet this test for a variety of reasons. Among other things, sales representatives usually do not manage other employees, and they are not administrative employees because their jobs do not directly relate to management or general business operations. Rather, a sales representative typically engages in promotional activities in a relatively small, well-defined geographic area.

If you are a sales representative and are not receiving overtime compensation, contact the New York wage lawyers at Rapaport Law Firm for help: ph (212) 382-1600. The attorneys at Rapaport Law Firm have represented employees in overtime and wage claims since 1995.

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