Supreme Court Holds That Pharmaceutical Sales Representatives Are Not Eligible For Overtime Under Federal Law

In a case that could impact employers beyond the pharmaceutical industry, the U.S. Supreme Court ruled on June 18, 2012, that sales representatives for drug companies meet the "outside sales exemption" under federal law and are therefore not entitled to overtime pay. By a 5-4 vote in Christopher v. SmithKline Beecham Corp., No. 11-204, the Court also held that the recent interpretation by the U.S. Department of Labor (DOL) of its outside sales representative regulations was an "unfair surprise" to employers, wrong and not entitled to deference.

For employers who have experienced the DOL providing no deference to them, there was likely some pleasure in seeing the DOL receive that same lack of deference. However, this case, while helpful, does not provide as much comfort or protection as some have suggested.

Case Background

Federal law prohibits anyone but a pharmacist from actually selling prescription drugs to consumers. In light of this ban, pharmaceutical companies focus their direct marketing efforts on physicians. Pharmaceutical sales representatives (PSRs) promote their employer's products by trying to persuade physicians to write prescriptions for the products. The primary objective is therefore to obtain a "nonbinding commitment" from physicians to prescribe certain drugs in appropriate cases.

The plaintiffs, who performed these job duties at SmithKline Beecham Corp. d/b/a GlaxoSmithKline (Glaxo), typically spent 40 hours in the field each week calling on physicians and an additional 10 to 20 hours attending events and performing other miscellaneous tasks. They each earned on average more than $70,000 per year, which included both a base salary and incentive pay. The PSRs filed suit, alleging that Glaxo violated the federal Fair Labor Standards Act (FLSA) by failing to pay them for overtime (more than 40 hours per week).

The FLSA requires employers to pay employees overtime wages, but this requirement does not apply with respect to workers employed "in the capacity of outside salesman." The DOL has issued regulations to define "outside salesman" and "sales."

The plaintiffs contended that they did not qualify for the outside salespeople exemption because they are not salespeople. They promoted products but could not lawfully make a sale by taking an order for purchase of a pharmaceutical product. The DOL filed a friend-of-the-court—or amicus—brief supporting the plaintiffs' position that PSRs are not salespeople and should not be...