Pharma Reform

Have things changed that much or have sales reps with the help of their lawyers just figured out how to characterize the pharmaceutical sales representative position so as to align their cases with the FLSA definitions for “non-exempt?”  Granted, it has been a while since I have been in the field (as a rep or riding along) but I always felt pharmaceutical sales reps were pretty autonomous, responsible, and accountable for “selling” the company products (legal and regulatory constraints considered) and “managing” the business in their territories.

Ok.  I’m not an attorney but the recent U.S. District Court ruling (Kuzinski, et al. v. Schering Corporation, Civil No. 3:07cv233 (JBA), August 5, 2011) would seem to suggest that all pharmaceutical representatives will have to be classified “non-exempt” hourly employees and be eligible for overtime pay.

By the courts’ strict interpretation of the FLSA (Fair Labor Standards Act) definition, pharmaceutical representatives do not actually make sales. Basically, they do not “consummate sales or obtain contracts or orders” or “binding commitments for purchase” from the physicians they call on and therefore do not qualify for the “outside sales exemption.”  This is hard to argue when a Department of Labor FLSA literal definition for prescription drug “sales” would only occur at the pharmacy or within the supply chain (e.g., wholesalers, chain pharmacies, buying groups, and hospitals) through negotiation, contract, and transaction activities that do not directly involve pharmaceutical representatives.  Despite arguments about the regulatory requirements dictating the role of physicians in the prescription drug sales process, without a lenient interpretation (consideration for regulatory and prescription drug market limitations) of the FLSA definition, it is unlikely that pharmaceutical representatives could ever qualify under the “outside sales exemption.”

The court’s interpretation of “administrative exemption” as it pertains to pharmaceutical representatives, however, is even more disconcerting.  It seems that if you do any training, supply any company developed sales materials or territory management assistance, or provide any management oversight, the courts will determine that “the primary duties” of pharmaceutical representatives do not include the “exercise of discretion and independent judgment with respect to matters of significance.”  This would suggest that the only way to qualify for the “administrative exemption” is to make sure pharmaceutical representatives have complete autonomy (totally independent of any corporate input), do their own training and planning, do whatever they want in the territories that they define as theirs (on their own with no physician or account data supplied by the company), decide and say what they want about the products they choose to promote, and are not managed or supervised in any way.

While this may sound absurd, this is not meant as a sarcastic commentary and certainly is not meant as legal advice but rather a practical observation of how the courts seem to be interpreting the FLSA definitions for “outside sales” and the “administrative exemption” as they pertain to pharmaceutical representatives.  As a result, if the courts continue to rule on these grounds,  I believe pharmaceutical companies will have little choice but to classify pharmaceutical representatives as “non-exempt” hourly employees and will be forced to implement some of the types of tactics discussed in an earlier post.  mike@pharmareform.com