Supreme Court Overtime Exemption Decision Reins In DOL

Author:Mr Eric Martin, W. Carter Younger, Christopher M. Michalik and Bruce M. Steen
Profession:McGuireWoods LLP

In a ruling that may have broad implications for all Fair Labor Standards Act (FLSA) white-collar exemptions, the U.S. Supreme Court held in a 5–4 decision that pharmaceutical sales representatives are not subject to overtime pay pursuant to the FLSA. Christopher v. SmithKline Beecham Corp. (S.Ct. June 18, 2012).

Christopher Decision

The FLSA establishes minimum wages and generally requires payment of an overtime rate of time-and-a-half for all hours worked over 40 in a given workweek for "non-exempt" employees. However, the overtime requirements do not apply to employees working in "exempt" jobs, including in "the capacity of an outside salesman."

In Christopher, the petitioners Michael Christopher and Frank Buchanan worked for SmithKline Beecham as pharmaceutical reps, meeting with doctors in their clinics and offices and obtaining "nonbinding commitments" from medical providers to prescribe SmithKline's drugs when appropriate. The reps never directly sold prescription drugs to doctors, pharmacies or patients and did not enter into contracts or directly transfer products. The U.S. Department of Labor (DOL) argued in amicus briefs in two Circuit Courts of Appeal for a very restrictive view of the outside sales exemption: that a "sale" requires a consummated transaction directly involving the employee at issue. Then in the Supreme Court, DOL changed to an even more restrictive position and argued that the employee "does not make a 'sale'. . .unless he actually transfers title to the property at issue."

In holding that the reps' work obtaining commitments from physicians to prescribe prescription medications qualified them as "outside salesmen", the Court noted that the reps were hired on the basis of their sales experience, worked outside an office with minimal supervision and were awarded "incentive pay" — an uncapped amount based on sales in assigned territories — on top of their base salary. The Court further held that the language of the FLSA outside sales exemption was an attempt to accommodate industry-by-industry variations in methods of selling goods. This regulatory intent, combined with established industry practice and other indicia that the employees were engaged in sales, was sufficient to bring them within the outside sales exemption.

Justice Alito noted in the majority opinion that the FLSA exempted outside salesmen from overtime pay because they "typically earned salaries well above the minimum wage" and received other...

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