Having already struck out on a curveball they thought was a fastball over the middle of the plate, Schering Corp. is now 0 for 2 following the latest ruling from the Connecticut federal district court in Kuzinski et al. v. Schering Corp.pdf., Case No. 3:07-cv-0233-JBA (D. Conn. August 5, 2011). The case began over four years ago, when Schering’s sales reps alleged that Schering intentionally misclassified them as exempt under the FLSA. In its first at-bat, Schering argued that the plaintiffs were subject to the FLSA’s outside sales exemption, and thus not entitled to overtime. Given the decades of support for this proposition, the crowd (and, most likely, Schering) perhaps expected a long drive to deep centerfield…a-wayyyy back…gone! The court, however, added a previously unseen curveball to its repertoire, finding that the outside sales exemption was not available because Schering’s sales reps did not actually sell their products directly to consumers. Rather, according to the court, the sales reps merely encouraged doctors to prescribe the company’s products, which indirectly resulted in increasing sales. Subsequently, the Second Circuit approved this analysis in In re Novartis Wage and Hour Litig., 611 F.3d 141, 150 (2d Cir. 2010).
Undaunted by its first strikeout, Schering strode out of the dugout a second time, knocked the dust from its cleats, and stepped into the batter’s box again with a new argument: that its sales reps were covered by the FLSA’s administrative exemption because they exercised discretion and independent judgment in promoting the sale of Schering’s drug products. The court shook off this changeup; however, striking Schering out yet again. In so holding, the court compared the plaintiffs to the “employee in the clothing store who assists customers in finding their size of clothing,” who “roams the floor” and adjusts her sales pitch to promote particular products to individuals. The court particularly noted in this regard that the exercise of discretion and independent judgment with respect to matters of significance requires more than “the use of skill in applying well-established techniques, procedures, or specific standards.” (It should be noted that the Second Circuit reached the same conclusion in regarding to the administrative exemption in its Novartis decision mentioned above.)
Thus, unfortunately for Schering, it was back to the dugout, 0 for 2 in its first two at-bats.
The Bottom Line: Given the circuit split on whether pharmaceutical sales reps are covered by the outside sales exemption (see Christopher v. SmithKline Beecham Corp., 635 F.3d 383 (9th Cir. 2011) and the unavailability of the FLSA’s administrative exemption, pharmaceutical companies will remain somewhat in limbo as to whether they may appropriately treat such employees as exempt. Moreover, this uncertainty is not likely to be resolved unless and until the Supreme Court weighs in on the issue, and the Court notably denied certiorari in the Novartis case.