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Wage and Hour Update: Don’t Let Misclassification of Your Employees Cost You Millions

Thumbnail image for Thumbnail image for Thumbnail image for above-the-bar-logo.jpgPharmaceutical giant Novartis received preliminary approval from a New York federal district court judge this week for a $99 million settlement of a lawsuit in which its sales representatives alleged that they were misclassified as “outside sales” under the Fair Labor Standards Act (“FLSA”) and denied overtime pay. The class action settlement could affect over 7,000 current and former sales employees.

Over the past few years, pharmaceutical representatives have filed many overtime claims alleging misclassification of sales employees. They have claimed that they do not fall under the “outside sales” exemption and should be paid overtime. The federal court across the country are divided on this issue. This settlement comes at time when the U.S. Supreme Court is considering another case, Chistopher v. SmithKlineBeecham Corp., which involves the same issue of whether the FLSA’s outside sales exemption applies to pharmaceutical representatives. The Supreme Court’s decision will affect thousands of employees across the country.

The settlement stems from two lawsuits which were filed back in 2006 pursuant to the FLSA and California and New York labor laws. In July, 2010, the U.S. Court of Appeals for the Second Circuit ruled that the FLSA exemption did not apply to the Novartis sales representative, thus finding the sales representatives to be employees under the law. Rather than waiting for the Supreme Court’s ruling in the SmithKlineBeecham case, the parties in Novartis decided to settle and not to wait for the Supreme Court’s ruling.

The president of Novartis has stated that “We remain confident that sales representatives should continue to be classified as exempt from overtime because their autonomy and incentive compensation are typical of exempt employees as defined by U.S. law.”

The FLSA provides an exemption from both minimum wage and overtime pay for employees who are outside sales employees. In order to qualify for the exemption, an employee must meet certain tests regarding their job responsibilities and be paid at least a salary of $455 per week. Your job title along does not give you an exempt status. For example, if your title is that of an outside sales employee, but your primary job duty is to schedule appointments, you are not exempt.

In order to qualify for the outside sales employee exemption, you must meet the following criteria:

-your primary duty must be making sales, or obtaining orders or contracts for services or for the use of facililites for which your client or customer will pay consideration; and -you must be customarily and regularly engaged away from your employer’s place of business.

Make sure your company is properly classifying your workers according to the guidelines under the FSLA. Misclassification can cost your company thousands in litigation costs as well as fines, penalties, and back taxes. Our attorneys have helped many businesses review the job functions of their workers to ensure that they are in compliance with the FLSA. Our attorneys have also helped companies determine if the Voluntary Classification Settlement Program is their best option. Call our Misclassification Attorneys at Villanueva & Sanchala at (800) 893-9645 if you think you might be misclassifying your employees.


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Other Sources

Fact Sheet #17F, U.S. Department of Labor

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