More than a year after a federal appeals court ruled that Novartis sales reps are not exempt from overtime provisions of the Fair Labor Standards Act and, therefore, should be paid overtime (back story), the drugmaker has agreed to a $99 million settlement, according to lawyers for the reps.
The move is significant because, until now, drugmakers have been fighting efforts by their current and former sales reps to win overtime pay. The topic has divided the courts and there have been so many conflicting rulings that the US Supreme Court agreed last November to review the debate (look here). A ruling is expected this summer. Ironically, the Supreme Court had earlier declined to review the decision in the Novartis case (here is the 2006 lawsuit filed by the Novartis reps).
At issue is whether sales reps are exempt from overtime provisions of the Fair Labor Standards Act. The FLSA overtime compensation requirement does not apply to employees who work as outside salespeople, but the law does require employers to pay overtime for hours worked beyond 40 hours a week, unless a FLSA exemption applies. What are those exemptions? If an employee’s primary duty is to obtain orders or contracts (as defined by the statute) and regularly does so away from the employer’s place of business.
Drugmakers argue their sales reps are, indeed, outside salespeople who close sales because the primary customer is the physician. For their part, reps have argued that a direct sale doesn’t occur because medicines are actually purchased by patients and hospitals, which receive the drugs from wholesalers. Meanwhile, the US Department of Labor has, several times, filed briefs in support of sales reps (for instance, here is the brief in the Labor Department filed in the Novartis case).
Despite the settlement, Novartis still believes reps should be exempt from overtime provisions of the FLSA. “We believe this settlement is in the best interest of our employees and the company,” Novartis Pharmaceuticals president André Wyss says in a statement. “We have been litigating this case for nearly six years and the company has determined that it is time to resolve these wage and hour claims. We consistently compensate all employees fairly in accordance with the US Fair Labor Standards Act and applicable state laws. We remain confident that sales representatives should continue to be classified as exempt from overtime because their autonomy and incentive compensation are typical of exempt employees as defined by US law.”
Meanwhile, the lead attorney for the sales reps, David Sanford, acknowledged that timing played a role in agreeing to a settlement before the Supreme Court reviews the issue. “While we remain confident that the United States Supreme Court later this year will uphold the Department of Labor’s interpretation of wage and hour law, the risks of further litigation are great.”
Why? He noted that a change at the White House after the upcoming presidential election could pose a “serious danger” that Labor Department would change its position. There is also a risk, he added, that the Supreme Court would not certify a class including Novartis sales reps from April 2007 to the present, because the drugmaker has since changed their responsibilities and reduced their hours, which would effect how overtime pay is calculated. This would reduce damages, he noted.