Novartis Pharmaceuticals Corp v. Lopes

Plaintiffs, pharmaceutical sales representatives, in a class action sued the employer for violation of the Fair Labor Standards Act (FLSA) alleging failure to pay overtime. The trial court granted the employer's motion for summary judgment. The 2nd Circuit reversed.

Plaintiffs did not sell drugs, visiting physicians to encourage prescriptions of the employer's products and providing drug samples and information. The issue was whether the plaintiffs were outside salesmen or administrative employees exercising discretion and independent judgment, both exempt from the FLSA.

The 2nd Circuit thought it clear that the regulations, defining the term "sale" as involving a transfer of title and explained in the Preamble to the 2004 Final Rule as obtaining a commitment to buy, and defining and delimiting the term "outside salesmen" in connection with an employee's efforts to promote the employer's products, did far more than merely parrot the language of the FLSA. The court granted "controlling" deference to the Department of Labor Secretary's interpretations of her regulations, which the court found were not inconsistent or plainly erroneous with the regulations. The 2nd Circuit concluded the plaintiffs were not outside salesmen. With respect to the administrative exemption, the court noted that the Secretary stated that the regulations required a showing of a greater degree of discretion, and more authority to use independent judgment in matters of significance, than the employer allowed the plaintiffs.

The 2nd Circuit found it appropriate to defer to the Secretary's interpretation, even though it was advanced for the first time in an amicus brief.

[Ed. Note: The 9th Circuit reached the opposite conclusion in Christopher v. SmithKline (9th Cir 02/14/2011), finding that pharmaceutical sales representatives were exempt from FLSA overtime-pay requirements as "outside salesmen."]

Case below: In Re Novartis Wage and Hour Litigation (2nd Cir 07/06/2010)
Official docket sheet
Certiorari denied February 28, 2011.
Oral argument:

Question presented:

The Fair Labor Standards Act ("FLSA") includes various "white -collar" exemptions intended by Congress to distinguish employees who are covered by the statute from those who are not. For seven decades, the pharmaceutical industry has classified its sales representatives as exempt from the FLSA’s overtime pay requirement, in reliance on the administrative and outside sales exemptions. The Third Circuit has held that the administrative exemption applies to these employees. The Second Circuit held that neither exemption applies, according "controlling" deference to an amicus brief of the Department of Labor ("DOL"), which advocated that position for the first time. The questions presented are:

1. Whether the Second Circuit’s holding that highly. paid pharmaceutical sales representatives are not covered by the FLSA’s administrative exemption, in direct conflict with the Third Circuit, or the outside sales exemption, is contrary to the statute’s text, purpose and DOL’s long-standing regulations.

2. Whether an agency’s break with prior interpretations of its regulations, advanced for the first time in an amicus brief, is entitled to heightened deference under Auer v. Robbins when it is inconsistent with the statute and its regulations, and causes unfair surprise by upsetting 70 years of settled expectations.

Certiorari Documents:

Briefs on the merits:

Counsel:

For Petitioner: Evan R. Chesler; Cravath, Swaine & Moore LLP; 825 Eighth Avenue; New York, NY 10019-7475; echesler@cravath.com; (212) 474-1000.

For Respondents: Jeremy Heisler; Sanford Wittels & Heisler LP; 1350 Avenue of the Americas; New York, NY 10019; jheisler@swhlegal.com; (646)-723-2947.

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