When Is a Sales Rep Not a Sales Rep?
Pharmaceutical sales representatives are not in sales, at least for the purpose of wage-and-hour laws. Reversing a lower court’s decision, the Second Circuit Court of Appeals ruled (http://case.lawmemo.com/2/novartis.pdf) that pharmaceutical sales representatives could not qualify for the “outside sales” or administrative exemptions to the overtime pay requirements of the federal FLSA.
The FLSA (and many states’ laws based upon it) requires employers to pay overtime wages (http://www.law.cornell.edu/uscode/ 29/usc_sec_29_00000207—-000-.html) to employees who work more than 40 hours a week, unless the employees fall within certain limited exemptions (see http://www.law.cornell.edu/uscode/29/usc_sec_29_00000213—-000-.html). To qualify for the outside sales exemption, an employee’s primary duty must be making sales or obtaining orders or contracts. Department of Labor regulations explain that employees “make sales” if they obtain a commitment to buy. Pharmaceutical representatives cannot make direct sales or obtain a commitment to buy because their products can only be sold with a prescription. Instead, the rep calls on physicians with product samples and information to encourage the doctors to prescribe the company’s products. Whether doctors do so is up to their professional judgment. Moreover, while a doctor may “commit” to prescribing a product (sometimes just to get rid of the sales rep), he is under no legal obligation to do so. Indeed, doctors cannot lawfully make such a binding commitment.
The Court acknowledged that the sales reps were engaged in promotional work, but it deferred to regulations (http://www.dol.gov/dol/allcfr/Title_29/ Part_541/29CFR541.503.htm) stating that “promotional activities designed to stimulate sales that will be made by someone else are not exempt sales work.” Since the sales reps did not actually make the sale, their promotion of the company’s products could not qualify them as exempt salespersons.
The Court also ruled that the pharmaceutical sales reps did not qualify under the administrative exemption. That exemption to the overtime laws requires employees to “exercise discretion and independent judgment with respect to matters of significance” to the business. The regulations define “discretion and independent judgment” as “more than simply the need to use skill in applying well-established techniques and procedures prescribed by the employer.” Since the reps had no role in formulating the message they delivered, no authority to deviate from that message, and no authority to answer any question without a pre-formulated script, the Court ruled that they could not meet the requirement for discretion and independent judgment.
This case should serve as a wake-up call for any employer whose “sales” employees promote products without making actual sales, particularly where their promotional efforts are scripted or controlled. If you are not paying such employees minimum wage and overtime now, you may need to start.
Document Preservation Demand — Now What?
You walk into your office, check your inbox, and notice an e-mail referring in the subject line to “Jane Doe,” an employee who was terminated six months ago. The attached letter is from Attorney Jones who represents Jane Doe and is investigating discrimination and retaliation claims. The lawyer demands that all potential evidence relating to Jane Doe, whether paper or electronic and including any e-mail sent or received by Jane Doe, be preserved along with backup tapes.
Now what do you do? Jane Doe was terminated six months ago. You have no idea what happened with her inbox, who worked with her over her five years with the company, and are not sure how long the company archived e-mail or other electronic records.
The answer is that you must figure out all these issues and look into other important questions because the company is now on notice that it has information relevant to a potential lawsuit and is obligated to preserve it. There are not many hard and fast rules in such a situation, but here are some important, immediate steps to take if you receive a similar letter.
- Determine what the legal obligations are, how to decide what information needs to be preserved. Be aware of potential employee privacy rights. See “Employee Retains Reasonable Expectation of E-mail Privacy Despite Computer Use Policy” (http://www.foley.com/publications/pub_detail.aspx?pubid=7365#2).
- Get to know your IT staff very well. Get a good grasp of your IT system and policies such as those for document retention/destruction, what happens with laptops or PDAs for departing employees, how frequently backup tapes are overwritten, and so forth.
- Develop an appropriate “litigation hold.” Decide whether the company will identify and preserve potentially relevant information or ask employees who may have it to do so. Give appropriate instructions where and how to store information to be preserved such as in specific folders. Capture all of Jane Doe’s folders and electronic data. Document the steps that you take so that you can demonstrate that the company acted quickly and reasonably to preserve information.
- Identify people who may have relevant information. Find out who has knowledge of the grounds for termination, whether employees with relevant information may have left the company, and so forth. Find out how employees organized and maintained potentially relevant documents.
- Monitor compliance with the litigation hold. Send reminders to employees about preserving relevant information.
- Conduct a preliminary search for potentially relevant information to determine the type of paper and electronic files that exist.
There is no doubt that this process can be time consuming and potentially expensive, particularly in discovery. It is crucial to remember, though, that the obligation to preserve this information arises when you receive notice of a possible claim, not only when a lawsuit is filed or discovery requests are received. If appropriate steps are taken only when the lawsuit is filed, it may already be too late and the company will be at risk if potentially relevant information was not preserved. For example, see “New E-Discovery Decision Imposes Sanctions, Highlights Risks” (http://www.foley.com/publications/ pub_detail.aspx?pubid=6764).
Our advice is to consult with your counsel immediately about appropriate steps to be taken, coordinate with your IT staff, and take prompt steps to preserve written and electronic documents.
Legal News is part of our ongoing commitment to providing legal insight to our clients and colleagues. If you have any questions about or would like to discuss these topics further, please contact your Foley attorney or any of the following individuals:
Authors
Sharon Mollman Elliott
Madison, Wisconsin
608.258.4786
[email protected]
Paul Monsees
Washington, D.C.
202.672.5342
[email protected]