Supreme Court Finds Pharmaceutical Sales Representatives Exempt From Overtime; Department Of Labor's Interpretation Of FLSA Regulations Not Entitled To Any Deference

Author:Proskauer's Class/Collective Action Practice Group
Profession:Proskauer Rose LLP
 
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In a much-anticipated decision in Christopher v. SmithKline Beecham Corp., on June 18, 2012, the U.S. Supreme Court held 5-4 that pharmaceutical sales representatives are exempt from overtime under the Fair Labor Standard Act's outside sales exemption because they "make sales" under the most reasonable interpretation of the law. In its holding, the Court unanimously ruled that the Department of Labor's interpretation of its own regulations – put forward for the first time in an amicus brief – was not entitled to deference, and instead relied on its own analysis of the relevant FLSA provisions and regulations as to what it means to "make sales."

While the decision will immediately affect the pharmaceutical industry – which now can safely treat its sales representatives as exempt from overtime without the specter of massive amounts of retroactive back pay liability – it also could have an impact on other industries, as well as the viability of the DOL's amicus brief program and Administrator Interpretation letters.

Background

The Court granted certiorari to resolve a split between the Second and Ninth Circuits. In July 2010, the Second Circuit concluded that pharmaceutical sales representatives for Novartis Pharmaceuticals Corp. were not FLSA-exempt under either the outside sales or administrative exemptions and could pursue overtime claims under the federal wage and hour law. (That action was subsequently resolved and a $99 million settlement finalized and approved just a few weeks before the Court's decision.) The Ninth Circuit (in Christopher) reached the opposite conclusion, declining to defer to the DOL's position that the outside sales exemption did not cover the drug sales representatives and instead holding that sales representatives make the functional equivalent of sales within the realities of the highly regulated pharmaceutical industry.

Petitioners were pharmaceutical sales representatives (also called "detailers") employed by GlaxoSmithKline. They were responsible for calling on physicians in an assigned sales territory to discuss the features, benefits, and risks of an assigned portfolio of respondent's prescription drugs. Their primary objective was to obtain a nonbinding commitment from the physician to prescribe those drugs in medically appropriate cases. They were hired for their sales experience, worked away from the office with minimal supervision, and were awarded incentive pay on top of their base salaries, earning on average over $70,000 per year.

Section 13(a)(1) of the FLSA exempts from the law's overtime requirements any...

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