A recent decision by a Connecticut federal court highlights the need for employers to conduct a fact-specific analysis of each employee’s job duties and responsibilities to determine if he or she is properly classified as exempt or non-exempt from minimum wage and overtime laws. In Kuzinski v. Schering Corporation (decided August 5, 2011), a federal judge ruled that pharmaceutical sales representatives employed by Schering Corporation did not qualify for the "administrative" exemption under the federal Fair Labor Standards Act (FLSA). As a result, the sales representatives were eligible for minimum wage and overtime pay.
At issue was whether Schering could show that the sales representatives: (1) engaged in work directly related to the management or general business operations of the employer or the employer’s customers, and (2) exercised discretion and independent judgment with respect to matters of significance. In some cases, courts have found that pharmaceutical sales representatives satisfied these requirements and qualified for exempt status. However, not all pharmaceutical sales representatives are the same, as Schering learned when the court sided with the plaintiffs on their claims of misclassification. This case illustrates the pitfalls of relying on job title alone.
The court in Kuzinski analyzed the particular job duties of Schering’s pharmaceutical sales representatives and found that their primary responsibilities were to meet with physicians selected by Schering within a particular territory and provide information pre-approved by Schering about the company’s pharmaceutical products. The court found that the employees had no say about the management of business operations, but instead engaged in targeted promotional outreach.
The court also found that pharmaceutical sales representatives did not exercise sufficient independent judgment with respect to matters of significance, because they had no role in planning marketing strategy or the core messages delivered to the physicians. They were each required to visit a physician a certain number of times, promote a given drug a certain number of times, and were not allowed to deviate from the core message. The court emphasized, as set forth in the relevant regulations, that the exercise of discretion and independent judgment requires more than just the use of skill in applying well-established techniques or standards; it must involve the authority to make an independent choice, free from immediate direction or supervision.
Pharmaceutical Sales Representatives Do Not Actually Sell
This same court ruled, in an earlier decision (March 30, 2009), that despite the company’s use of the title "sales representatives," and its recruitment of employees with "sales experience" for these positions, the employees did not actually "sell" as the term is defined in the FLSA. This is because pharmaceutical sales representatives do not negotiate pricing or contracts with physicians, no money is ever exchanged between a physician and a sales representative, and physicians do not order or receive pharmaceuticals directly from the sales representative or anyone at Schering. In fact, the law prohibits physicians from contracting directly with pharmaceutical companies to prescribe a certain product.
Misclassification claims have risen steeply, and the economic consequences to employers can be severe. This recent federal case highlights the risk of relying too heavily on job titles when determining whether an exemption applies.
To avoid misclassifying employees, savvy employers ought to:
If you have questions about how to conduct an internal audit to review your company classifications as exempt or non-exempt, or any other aspect of wage and hour law, please contact Daniel S. Tarlow, chair of the Employment Law Group. You can reach Dan at 617 456 8013 or firstname.lastname@example.org.