Schering Loses Round Two in Effort to Prove Its Sales Representatives Are Exempt

Pharmaceutical Sales RepresentativeIn Kuzinski v. Schering Corp, the U.S. District Court for Connecticut has dealt another blow to Schering Corporation’s efforts to prove that its pharmaceutical representatives are not entitled to overtime pay under the federal Fair Labor Standards Act. In ongoing litigation, the court had already rejected Schering’s argument that its pharmaceutical representatives were exempt outside sales employees. Schering tried another tactic, arguing that its sales representatives qualified as exempt from overtime under the administrative exemption. The plaintiffs filed their own motion for summary judgment. Acting on these cross motions for summary judgment, the court issued a decision on August 5, 2011, finding that the sales representatives are not exempt administrative employees.

Employers seeking to apply the FLSA’s administrative exemption must prove that: (1) the employees are paid a salary of at least $455 a week; (2) their “primary duty” is “the performance of office or non-manual work directly related to the management or general business operations of the employer or the employer’s customers;” and (3) the employees’ “primary duty” includes the “exercise of discretion and independent judgment with respect to matters of significance.” According to the district court, Schering’s sales representatives did not meet the second or third parts of this test.

The court determined the promotional work performed by the “sales” representatives was “not a duty directly related to Schering’s management or general business operations . . .,” adopting the Second Circuit’s analysis in In re Novartis Wage and Hour Litigation. Having already found that the “sales” representatives do not consummate sales, the court then concluded that, “neither do they design the promotional materials to be used in their sales calls . . . nor develop the ‘core message’ to be delivered during meetings with health care professionals . . . ." Likewise, while the sales representatives “helped drive Schering’s market share . . . they did so by promoting products to specific physicians in a set territory, not by marketing Schering products generally.” Schering’s representatives “use the core messages and promotional strategies developed by marketing teams; they do not develop those messages themselves or set overall market strategies.” For these reasons, their primary duty did not directly relate to Schering’s management or general business operations, and failed the second part of the test for the administrative exemption.

Schering’s sales representatives also came up short on the third part of the test for exempt administrative status according to the court. Relying once more on the Second Circuit’s decision in Novartis, supra, the trial court concluded that the discretion Schering permitted its sales representatives did not extend beyond “day to day duties” to “matters of significance.”

Thus, the sales representatives could adjust their interactions with individual physicians based on what they found to be the most effective approach. And they were not required to always deliver the same “core message” to each physician, nor to execute their sales calls according to a set script. But Schering did not permit sales representatives to present any information that had not been approved by and received from Schering. Nor were sales representatives allowed to develop their own core message, “but were instead instructed by Schering on how to deliver a core message that had been developed by a Schering marketing team . . . ." Schering set the overall market strategy for particular products, and while the sales representatives had the ability to call on doctors who were not on the target list generated by Schering, they were required to call on each doctor on that target list.

As a result of these constraints, “any discretion that Plaintiffs exercised fell within the bounds of the strategic plan and core message developed by Schering, rather than developed by Plaintiffs themselves; . . . they had no role in planning market strategy or the core message . . . ."

The court’s ruling is a further example of the unsettled state of the law on the status of pharmaceutical industry representatives. The Second Circuit’s Novartis case charts one course, determining that realities “on the ground” in the highly regulated pharmaceutical industry are insufficient to call for any industry specific analysis of what it means to make a “sale.” Meanwhile, the Ninth Circuit, in its decision in Christopher v. SmithKline Beecham, stakes out a different path with its conclusion that a “commonsensical” interpretation of the term “sale” in the pharmaceutical industry calls for a conclusion that sales representatives performing their jobs in ways much like that of their industry colleagues at Schering, qualify for the outside sales exemption.

Photo credit: Schulte Productions

Information contained in this publication is intended for informational purposes only and does not constitute legal advice or opinion, nor is it a substitute for the professional judgment of an attorney.