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June 2012

US Supreme Court Determines That Pharmaceutical Sales Reps are Exempt from the FLSA's Overtime Requirements

Christopher v. SmithKline Beecham Corp., 2012 WL 2196779 (June 18, 2012)

The United States Supreme Court, in a 5-4 decision, recently resolved a circuit split and affirmed the Ninth Circuit’s interpretation of portions of the Fair Labor Standards Act (“FLSA”).  In Christopher v. SmithKline Beecham Corp., the Court held that pharmaceutical sales representatives, based on the nature of their work, are exempt from the FLSA’s minimum wage and maximum hours requirements. 

Respondent SmithKline Beecham Corporation is a pharmaceutical company in the business of developing, manufacturing, and selling prescription drugs.  Petitioners Michael Christopher and Frank Buchanan (“Petitioners”) are former SmithKline pharmaceutical sales reps who filed a lawsuit alleging that SmithKline violated the FLSA by failing to compensate them for overtime.

The District Court agreed with SmithKline’s argument that Petitioners were “employed in the capacity of outside salesmen” and granted summary judgment to SmithKline.  Petitioners appealed and the Ninth Circuit affirmed.  In doing so, the Ninth Circuit expressly chose not to give deference to the Department of Labor’s (“DOL”) interpretation.

In this regard, the Court rejected the DOL’s interpretation of the FLSA that “an employee does not make a ‘sale’ for purposes of the ‘outside salesman’ exemption unless he actually transfers title to the property at issue.” 1  Turning next to the text of the FLSA, the Court emphasized the statute’s use of the word “capacity” and interpreted an employee’s responsibilities as industry-specific. 2

Reasoning that “[o]btaining a nonbinding commitment from a physician to prescribe one of Respondent’s drugs is the most that Petitioners were able to do to ensure the eventual disposition of the products that Respondent sells,” the Court adopted a broad definition of “disposition.” 3   Furthermore, because Petitioners “bear all of the external indicia of salesman,” the majority concluded that they “are hardly the kind of employee that the FLSA was intended to protect.”

In dissent, Justice Breyer argued that obtaining a commitment to merely advise a client to buy a product does not qualify as an actual sale of the product.  Because the doctor buys nothing and the pharmaceutical sales representative sells nothing, Justice Breyer disagreed with the majority’s conclusion that pharmaceutical sales representatives fall within the FLSA’s outside salesman exemption.

Christopher represents a significant victory for the pharmaceutical industry, and for employers, in exempting pharmaceutical sales representatives from the FLSA’s overtime requirements.  Additionally, the Supreme Court’s decision could be used to argue that courts should, in the future, limit the deference given to federal agencies’ interpretations of their own regulations. In light of this recent decision, employers potentially affected by this ruling should work with their attorneys in evaluating and revising appropriate overtime policies.



1 See Auer v. Robbins, 519 U.S. 452, 461–62.

2 29 U.S.C. § 213(a)(1).
3 29 C.F.R. § 541.501(b).

 

Employment Law

Brandon D. Saxon


Employment Law

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