At issue in several federal courts is whether or not pharmaceutical sales representatives are covered by the Fair Labor Standards Act (FLSA).  The FLSA mandates overtime pay for non-exempt employees who work more than 40 hours in a work week.

Pharmaceutical sales representatives claim their employers have violated the FLSA by not paying them overtime.  The drug companies argue that sales representatives fall within an exemption to the FLSA for outside sales employees.  Thus, the key question before the courts is whether these pharmaceutical sales representatives are “outside sales” employees within the meaning of the FLSA.

Pharmaceutical sales representatives work for drug companies visiting physicians and encouraging them to prescribe their employer’s drug instead of a competitor’s.  These pharmaceutical sales representatives are paid salaries plus commissions based on how the drug sales trend in their sales territory following their sales calls to the physicians.  The “sales reps” drive pharmaceutical sales by providing:

• data to the physicians about recent drug trials involving their drugs and competitors,
• copies of medical journal articles concerning their product, or
• experts to address concerns a physician might have that may prevent him from writing prescriptions for the drug. 

The courts have had difficulty resolving the exempt classification issue surrounding pharmaceutical reps.  Some courts have said yes; others say no.  Legal commentators predict the issue soon will be resolved by the United States Supreme Court, given the inconsistent results reached in the various appellate courts.

The Ninth Circuit ruled on February 14, 2011, that pharmaceutical sales representatives are exempt and they are not entitled to overtime pay.  The court focused on the wording of the Preamble to the 2004 Department of Labor’s Wage and Hour Division supplemental rules, which only required the person “in some sense made a sale.”  The Ninth Circuit found pharmaceutical sales representatives come as close to “making a sale” as is possible in this highly regulated pharmaceutical industry.  In doing so, the court rejected the position offered by the Secretary of Labor in the Department of Labor’s brief, which argued the inability of a pharmaceutical sales representative to sell the product to the physicians on whom they call prevents their activities from meeting the definition of a salesperson under the statute.

While the Ninth Circuit did not give deference to the Department of Labor’s position and, in fact, rejected it to find pharmaceutical sales representatives exempt; in 2010 the Second Circuit decided to defer to the Department of Labor in a case involving the drug company Novartis.  That decision found pharmaceutical sales representatives are not exempt because they have not “in some sense made a sale” given their inability to legally sell the drugs to doctors or directly to patients.

When appellate courts reach inconsistent outcomes, the common way to create harmony within the court system is for the United States Supreme Court to accept a case and issue a ruling that lower courts are then bound to follow. 

The Supreme Court recently did resolve a related issue in the case Kasten v. Saint-Gobain Performance Plastics Corp. (March 22, 2011), holding that the Fair Labor Standards Act protects employees from retaliatory firing after making either a written or oral complaint about their employer’s possible violations of the FLSA.  This law protects employees when they complain about an employer’s unfair compensation system without requiring them to first file suit.  This should put all employers on notice of the importance of the FLSA.

~ by Michael Josephson, Attorney
Fibich Hampton Leebron Briggs & Josephson, LLP

Most employers prefer the at-will employment arrangement.  They can fire their employees whenever it suits them for almost any reason (with narrow exceptions for anti-discrimination, disability and similar laws).  An at-will employee works at the whim of his employer, and good job performance is no protection from being fired. 

That might be about to change – at least a little bit. 

A case that is on-going in Maryland federal court is deciding whether an employer has legally limited its ability to fire an at-will employee by enacting a company policy against retaliation.  The case is Scott v. Merck & Co., and the policy being sued over says this –

We will not tolerate retaliation against any employee for raising a business practices issue in good faith... The fact that an employee has raised concerns in good faith, or has provided information in an investigation, cannot be a basis for denial of benefits, termination, [or] demotion...

What happened to Jennifer Scott

Jennifer Scott is a former Merck employee who went to the company’s ethics committee with a list of complaints about her supervisor, including that he:

• forced her to allow co-workers to use her company credit card – a clear violation of company policy; and
• insisted that she market Merck drugs in a way that violated company policy and FDA regulations. 

The ethics committee agreed.  In the meantime, her supervisor was transferred to another position in the company. 

After his transfer, the former supervisor was allowed to perform Scott’s annual review even though he had been the subject of an ethics investigation begun by Scott’s disclosures.  Not surprising, he fired her.  She then sued. 

Merck Defends Supervisor’s Dismissal of Scott

Before trial, Merck tried to have Scott’s case thrown out arguing that at-will employment allows Merck to fire Scott for any reason. Scott countered that Merck’s anti-retaliation policy, which all Merck employees were informed existed, altered the at-will employment by specifically protecting her from being fired in retaliation. 

The federal district court previously agreed with Scott. 

Merck’s anti-retaliation policy was specific enough to prevent an employee from being fired in retaliation for telling the ethics committee about a supervisor’s bad business practices.  It seems that Merck still could fire Scott for just about any reason – but not a reason in clear violation of their anti-retaliation policy.

Based on this legal conclusion, Scott’s case was not dismissed. Now Merck is forced to defend itself and the reason Scott was fired at trial.

What could this mean for other at-will employees?

Employees have to look closely at their company’s policies.  A “do good” policy that states a general goal of being good or treating employees fairly does not change the at-will character of the employment relationship.  These employees still can be fired for any reason.

However, employees whose company has enacted a policy that make specific promises about how or under what circumstances the employees will not be fired may have an employment contract that limits their at-will status.  They still are at-will employees and still can be fired for almost any reason; however, under the Scott v. Merck & Co. court’s ruling, these employees should have limited protection from being fired for doing the specific thing the company’s policy promised could not be a valid basis for dismissal.