Pharma Happy With Supreme Court Rx: 'No Overtime Pay For Pharma Sales Reps'

Author:Fisher & Philips LLP
Profession:Fisher & Phillips LLP

In an important wage-hour decision with potential relevance beyond the pharmaceutical industry, the Supreme Court held on June 18, 2012, that pharmaceutical sales reps at GlaxoSmithKline (GSK) were exempt from overtime pay under the Fair Labor Standards Act's exemption for "outside salesmen," resolving a split among the courts.

Significantly, in reaching that decision, the Court also held that deference was not owed to a U.S. Labor Department (DOL) interpretation of the exemption (an interpretation favoring the employees' claims). The interpretation by DOL was first published only recently in court briefs (not in agency regulations), and DOL had never previously questioned the exempt status of pharmaceutical sales reps who have long been treated as exempt by such companies. Christopher v. SmithKline Beecham.

Were The Sales Reps "Making Sales"?

The FLSA exemption for an "outside salesman" applies to an employee if both of the following criteria are met: 1) the employee's primary duty is either "making sales" or "obtaining orders" for his employer; and 2) the employee is customarily and regularly away from the employer's places of business while performing such exempt work.

The main issue before the Court was whether the sales reps were actually "making sales" within the meaning of the exemption under circumstances where the sales reps:

regularly called on doctors at their offices; urged the doctors to prescribe specific drugs of the drug-maker for particular conditions; and requested, and often obtained, nonbinding commitments from the doctors that they would prescribe those drugs for their patients when it was medically appropriate. Sales reps received commissions when those particular doctors did, in fact, prescribe those drugs, as tracked through the records of dispensing pharmacies.

The sales reps (and DOL) contended that the reps were not "making sales" because the reps could not obtain sales orders or binding commitments from the doctors due to drug-industry laws precluding such orders or commitments. The reps and DOL also argued that the reps were engaged only in a non-exempt form of "promotion" work, which refers to promoting sales which will be made by other employees.

GSK (and its supporters, including the U.S. Chamber of Commerce) contended that the sales reps were "making sales" within the meaning of the overtime exemption because the reps obtained nonbinding commitments from the doctors and those doctors did subsequently...

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