Monday, July 12, 2010

Pharmaceutical sales reps are entitled to overtime

In a ruling that will affect how countless pharmaceutical sales representatives will be compensated, the Court of Appeals has ruled that they are entitled to overtime pay for their relentless efforts to sweet-talk doctors into prescribing the little pills and drops that make us feel better, physically and mentally.

The case is In re Novartis Wage and Hour Litigation, decided on July 6. As there is a lot of money at stake, this case attracted amicus briefs from some heavy hitters around the country. If the average sales representative makes $91,000 including bonuses, imagine what they can make with overtime caused by the long hours necessitated by lobbying doctors to prescribe their products.

The district court said the plaintiffs (a class of 2,500 people) were not entitled to overtime because they are outside sales employees and therefore exempt from the overtime rules. The Court of Appeals (Kearse, Hall and Rakoff [D.J.]), reverses. Outside salespeople are exempt from overtime requirements if their primary duties involve making sales or obtaining orders. Under the Fair Labor Standards Act, these workers are not exempt, and are therefore entitled to overtime, if their promotional efforts are designed to stimulate sales that will be made by someone else. Under the regulations intended to clarify the FLSA, and the Department of Labor's interpretation of them, the pharmaceutical sales representatives are entitled to overtime. Here is the crux of the Second Circuit's opinion:

[A] person who merely promotes a product that will be sold by another person does not, in any sense intended by the regulations, make the sale. The position taken by the Secretary [of Labor] on this appeal is that when an employee promotes to a physician a pharmaceutical that may thereafter be purchased by a patient from a pharmacy if the physician -- who cannot lawfully give a binding commitment to do so -- prescribes it, the employee does not in any sense make the sale. Thus, the interpretation of the regulations given by the Secretary in her position as amicus on this appeal is entirely consistent with the regulations.

To understand this ruling, read the first few pages of the decision, which outlines how sales representatives actually do their work. As noted, they cannot personally sell the drugs, and they are not allowed to secure binding promises from doctors to sell them, either. The sales representatives do not use much independent judgment in promoting the drugs. Instead, they hound the doctors and try to talk them into prescribing the drugs and provide them with promotional materials that play up the drugs' benefits. The sales representatives are trained by the pharmaceutical companies in how to lobby the doctors, how to deal with different personality types and how to leave behind free samples in the hopes that the doctors will loyally prescribe that brand which, in turn, gives the sales reps a higher bonus when management determines which representatives are the most persuasive. While the representatives have to ask the doctors for a commitment to prescribe their drugs, those promises are not binding, as the doctor's loyalty is to her patients, not the drug companies. Indeed, "one Rep stated that a physician might answer affirmatively just to get the Rep out the door." The reps are also closely monitored by the drug companies in the form of "ride-alongs." All very interesting to read, shedding light on how the multi-billion industry makes its money.

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