U.S. Supreme Court Sides With Employers On The Outside Sales Exemption

Author:Mr Thomas Kaufman
Profession:Sheppard Mullin Richter & Hampton

On June 18, 2012, the U.S. Supreme Court issued a 5-4 decision Christopher v. SmithKline Beecham, holding that pharmaceutical sales representatives ("pharma reps") generally meet the FLSA's outside sales exemption. While there are differences between California and the FLSA concerning the elements of the outside sales exemption, this case dealt with the definition of "selling" under the exemption, which is an area where the two statutes have generally been interpreted as parallel. Accordingly, if Christopher is adopted in California, then pharma reps will qualify as outside salespersons under California law as well. The case is helpful to employers both with respect to the outside sales exemption and with efforts to combat the Obama Administration Department of Labor ("DOL") when it intervenes in wage and hour cases on behalf of the employees.

For those who do not know what pharma reps are, they are the people who travel around, chatting up doctors about various drugs the doctors should prescribe their patients for specific conditions. There was a B-movie called "Love and Other Drugs" a few years ago that featured Jake Gyllenhaal as a pharma rep who specialized in persuading doctors to prescribe Viagra. Anyway, pharma reps look like outside salespersons in most respects in that they are outside nearly 100% of the time, they are trained in sales, and they are compensated with incentive pay based on how well "their drug" is selling in their assigned territory. The hitch is that, by law, they cannot actually obtain a binding commitment from a doctor to prescribe the drug to a patient (or the patient to fill a prescription) but only can obtain a non-binding agreement that the doctor will prescribe the drug in appropriate cases. For this service, pharmaceutical companies pay them an average of more than $70,000 per year (the median compensation is actually above $90K).

The plaintiffs argued that the work pharma reps do is really just non-exempt "promotion" work rather than the necessary "sales" work to trigger the exemption. The Second and Ninth Circuits split on this question, with the Ninth Circuit (surprisingly) finding that these employees qualified as outside salespersons because they "sell" as that notion is understood in the pharmaceutical industry. Notably, the Ninth Circuit had rejected the interpretation of the statute the Department of Labor advanced in amicus briefs it filed in both the appellate cases. The Supreme Court...

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