Possible Misclassification of Employees Costs Novartis $99 Million

Written by Robert G. Brody and Rebecca Goldberg on February 15, 2012

Swiss pharmaceutical manufacturer Novartis thought it was playing by the rules when it treated its sales representatives as exempt from overtime under the Fair Labor Standards Act (the “FLSA”).  Now it is paying $99 million to settle a class action lawsuit by its sales representatives, not to mention six years’ worth of attorneys’ fees.  The entire pharmaceutical industry had long treated its sales representatives as exempt employees, often under the “outside sales” exemption of the FLSA, but this practice was no defense.

The outside sales exemption applies to those who make “sales” as defined by the FLSA and customarily perform their jobs outside the employer’s place of business.  Courts are now divided as to whether pharmaceutical sales representatives – who typically obtain a non-binding agreement to use the drug – are actually selling anything because there is no contract or exchange of goods or services.  The Supreme Court is expected to rule on this issue in another case in the near future, but Novartis decided not to wait for the ruling and settled now for a whopping $99 million.

Novartis’ experience shows what can happen when companies follow industry standards without independently assessing if the law supports the longstanding industry practice.  Employers in other industries can learn from Novartis.  Before determining that a class of employees is exempt from overtime, employers should consult with an attorney experienced in wage-and-hour issues.  It is not safe to assume the actions of other companies – even an entire industry – are correct, nor should you assume an exception correctly applied in one case can necessarily be applied to your situation.   Employers should take the time now to ensure their pay policies are lawful under state and federal statutes.  An ounce of prevention could be worth $99 million worth of cure.

Brody and Associates regularly advises management on complying with state and federal employment laws including wage-and-hour laws.  If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.965.0560.

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Related Topics: Legal Updates, News, Wage and Hour

About the Authors

Robert G. Brody is the founding member of Brody and Associates, LLC. He has been quoted and published in national publications and appears as a guest T.V. commentator on contemporary Labor and Employment issues. Learn More