Supreme Court Holds That Pharmaceutical Sales Representatives Are Exempt From Overtime

Author:Mr Daniel Schwartz and Howard Fetner
Profession:Day Pitney LLP

The United States Supreme Court decided on Monday, June 18, that pharmaceutical sales representatives are exempt from the overtime pay requirements of the Fair Labor Standards Act (FLSA) because they satisfy the FLSA's "outside salesman" exemption. The case is Christopher v. SmithKline Beecham Corp.

Background of Case

Petitioners Michael Christopher and Frank Buchanan worked for respondent SmithKline Beecham as pharmaceutical sales representatives. In that role, the petitioners' primary duties were to meet with physicians, describe respondent's products and seek to obtain nonbinding commitments from the physicians to prescribe the respondent's drugs in appropriate cases. The petitioners alleged that they regularly worked more than 40 hours per week and that SmithKline Beecham violated the FLSA by failing to pay them overtime compensation.

Supreme Court's Decision

The case turned on whether pharmaceutical sales representatives are outside salesmen and thereby exempt from overtime under the FLSA and within the meaning of the regulations promulgated by the United States Department of Labor (DOL). In an amicus brief filed in the case, the DOL took the position for the first time that, in order to qualify for the outside salesman exemption, an employee must "actually transfer[] title to the property at issue" (which pharmaceutical sales representatives do not do). In a 5-to-4 decision, the Supreme Court concluded that the DOL's interpretation of its own regulations was not entitled to controlling deference, in part because the DOL's interpretation would impose potentially massive overtime pay liability for years of employment that occurred before the DOL ever announced its interpretation. The Court also noted that the pharmaceutical industry had classified its sales representatives as exempt employees for decades, and the DOL had never initiated any enforcement actions or suggested the employees were misclassified.

In the absence of controlling deference, the Court found the DOL's interpretation of its regulations - that a sale requires a transfer of title - unpersuasive. The Court then interpreted the FLSA itself to determine whether pharmaceutical sales representatives are exempt as outside salesmen. The FLSA's definition of "sale" includes the phrase "other disposition," which the Court...

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