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Court rulings begin to swing toward categorizing pharma reps as hourly workers
Every other pharma sales and marketing event I attend highlights the changing dynamics of the pharma sales profession. The layoffs that have been coursing through the industry (see p. 1) are one very obvious change. The “key account” dynamic—where industry representatives meet with the P&T committees and directors of pharmacy at managed care organizations, as opposed to knocking on doctors’ office doors—is another. A third is the evolution of sales force automation (SFA) systems, which combine providing access to more detailed data on prescribing behavior and monitoring ever more closely the actions of sales reps in the field.
Another potential change, though, is coming from within the sales rep ranks—the class-action suits that have been filed to categorize sales reps as “non-exempt” employees—i.e., ones for whom national labor laws apply, specifically the overtime-payment requirements of the Fair Labor Standards Act (FLSA). Traditionally, most pharma reps have been considered by their employers to be exempt, salaried personnel for whom overtime-pay requirements do not apply. But that has been contested, in multiple suits filed in multiple jurisdictions, by labor law firms seeking to recategorize reps, and win both back pay and ongoing wages for working more than a 40-hour week. In early June, one of the suits (Jerik, Pedersen et al. v. Abbott Laboratories, 1:07-cv-03626) in federal District Court for Northern Illinois, ruled in favor of the reps. Other suits, against Novartis, Boehringer-Ingelheim, Ortho-McNeil, Amgen and others, have had mixed results. The Abbott case now moves to a hearing in September for deciding damages. Observers expect this or the other suits to eventually reach the Supreme Court.
The Abbott ruling turned on two issues: whether sales reps actually take orders and complete sales, and whether they perform their jobs with sufficient independence from their employer to qualify as exempt. Citing other filings, Judge Ruben Castillo agreed with plaintiffs that representatives “do not sell anything and health care providers do not purchase anything.” Also, “although representatives had flexibility to determine how to best craft the appropriate message for a particular doctor, they did not engage in sales calls independently, and were not free from immediate direction.”
Here’s the rub: broadly speaking, the pharma industry has been compelled, by FDA, DOJ and state agencies, to rein in reps’ activities, to monitor their actions closely, and to keep them “on message”—most specifically with avoiding off-label promotion. And while some reps seek professional status (through certification programs such as that of the American Assn. of Pharmaceutical Sales Professionals), the general trend has been to de-professionalize the occupation, a condition that many reps criticize.
The long-term implications of the court ruling, if it stands, are on the whole not good for the profession (aside from whatever financial reward the current plaintiffs might win from the litigation, eventually). One can expect the pharma industry to continue to downsize the rep ranks, especially if they’re going to cost more to do their job. Hourly employees (many of whom do vital, important work, to be sure) generally are not graced with generous bonus plans—the development of which is a cottage industry all by itself within pharma, and one that seems to consume inordinate management attention.
Terry Tormey, whose career spans rep, sales VP, president of a contract sales organization (Nelson Professional Sales, now Publicis Selling Solutions) and, now, industry consultant, says that one possible outcome of the current trends is to swing yet more management focus to medical science liaisons (for doctors) and nurse educators (for patients)—something that puts those workers in competition with reps for company resources. Another potential result will be more momentum for contract sales, similar to the situation in Europe where lifetime-employment laws drive a much higher proportion of sales reps as contractors, as compared to the US.
More and more, the past two decades of sales-rep growth are looking like a historic anomaly, and one that’s not likely to return soon. Over a year ago, I wrote another editorial (April 2009, p. 6) that “claims of the death of pharma sales rep occupation have been greatly exaggerated”—and I stand by that statement. But these change-drivers, both internal and external, will transform the profession. Don’t stand still.