Second Circuit Deals Novartis a Costly Blow

Posted on July 26, 2010 by Kevin M. Doherty, Esq.

In another decision addressing the rampant misuse of the outside sales and administrative exemptions by companies, the Court of Appeals reversed a prior favorable decision for Novartis in In re Novartis Wage and Hour Litigation. The Court found that the sales representative were neither exempt outside sales people nor exempt administrative employees.

In this decision, that Second Circuit found that sales representatives were not exempt under the FLSA because they did not actually engage in sales activities. First, the Court found that the salespeople were promoting sales of other, not making sales themselves. Thus, these employees primary duty was not making sales away from the employer’s place of business.

Similarly, the Court found that the sales representatives only performed low level marketing functions. Even though they had some authority to enter into agreements which bound Novartis and had some discretion, the Court found the employees’ duties were not sufficient to make them exempt administrative employees under the FLSA.

This mirrors a similar decision we discussed in April of 2009 against Schering Corporation. The results of these decisions are significant. Given the relatively high pay of these employees, even a few years of overtime could add up to hundreds of thousands of dollars for each employee.

Pharmaceutical companies are not alone. Many industries widely misapply the outside sales and administrative exemptions, and they face similar exposure to overtime liability.
 
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Court Affirms Commissioned Salespeople Entitled to Overtime

Posted on January 26, 2010 by Matthew B. Wolin, Esq.

One common mistake that employers make is to consider all commissioned salespeople to be exempt employees.  Most companies employ inside salespeople, including those who make telesales or e-mail sales from remote locations.  These inside sales people are generally not exempt.  Only outside salespeople and retail salespeople are exempt.  All other commissioned employees must be paid overtime if they work over 40 hours in a workweek, unless another exemption applies to them.

A recent Second Circuit decision reaffirms the above. The Court found that a Regional Director of Sales could be entitled to overtime in those weeks that she worked over 40 hours. Even though the employer tried to argue that she was an exempt administrative employee, the court found that her primary duty was making sales and not marketing activities. As a result, she could not be an exempt administrative employee and could therefore maintain her claims for overtime.

This decision emphasizes the need for employers to carefully examine the overtime eligibility of their sales staff. If the sales staff does not fit into one of the limited sales categories that are not entitled to overtime, it is very difficult for commissioned salespersons to fit into the other white collar exemptions.
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