In a BLR webinar titled "Exempt or Nonexempt? How To Avoid the Misclassification Mistakes You Simply Can't Afford To Make," Aaron R. Gelb, Esq., discussed how the courts have addressed a series of lawsuits filed by plaintiffs' attorneys challenging the exempt status of pharmaceutical reps.

• The majority of lower district courts agreed with employers in recognizing that pharmaceutical reps sold in the only way possible in the pharmaceutical industry. Many courts also found in the alternative that the pharmaceutical reps were exempt under the administrative exemption.
• Surprisingly, the Second Circuit Court of Appeals (New York, Connecticut, Vermont) held that pharmaceutical reps are not exempt. The appeals court's decision relied heavily on the U.S. Department of Labor's (DOL's) amicus brief asserting that sales reps were nonexempt because (i) they did not "sell" anything and (ii) they did not exercise discretion and independent judgment.
• The Ninth Circuit Court of Appeals recently disagreed with the Second Circuit and the DOL and ruled that the pharmaceutical reps were exempt under the outside sales exemption.
• The Third Circuit Court of Appeals (NJ and PA) also weighed in, finding that pharmaceutical reps were exempt under the administrative exemption.

In the 9th Circuit case, the court viewed the term "sale" in a "commonsensical" fashion in light of the "structure and realities of the heavily regulated pharmaceutical industry." The court concluded that the "sale" is the non-binding commitment from the physician to prescribe the pharmaceutical reps' assigned product when medically appropriate.

Interestingly, the 9th circuit court took note of the DOL's "acquiescence" for more than 70 years to the classification of pharmaceutical reps as exempt. The court criticized that the DOL's "about-face" position, "expressed only in ad hoc amicus filings, is not enough to overcome decades of DOL nonfeasance and the consistent message to employers that a salesman is someone who 'in some sense' sells." The court concluded the DOL's argument "fails to account for industry customs and emphasizes formalism over practicality."

Where Does This Leave Us?

Although the Supreme Court has declined to take up this issue so far, it likely will do so within the coming year.

In addition, if it is ultimately decided that pharmaceutical reps are not exempt, they will probably lose out in the long run in terms of:

• Less pay
• Less freedom
• Fewer jobs

Aaron R. Gelb, Esq., is a shareholder at Vedder Price PC and a member of the firm's Labor and Employment Practice Area. Based out of the firm's Chicago office, he represents employers in all aspects of equal employment opportunity, wrongful discharge and labor relations litigation before federal and state courts, federal, state and local fair employment and administrative agencies such as the EEOC, the Department of Labor, and National Labor Relations Board. Gelb also partners with human resources consultants to develop a multi-disciplinary approach that combines the operations expertise of experienced HR professionals with an attorney's legal knowledge to develop real-world solutions in a cost-effective manner. He can be contacted at agelb@vedderprice.com.