Contributed by Samantha Esmond
On May 16, we reported on the Seventh Circuit decision on whether pharmaceutical representatives are exempt under the FLSA. At the time, we were still waiting for the Supreme Court decision. Well here it is: on June 18, the court rejected the DOL’s interpretation of the “outside salesman” exemption to the Fair Labor Standards Act and determined that pharmaceutical sales representatives who encourage doctors to prescribe the use of a company’s products are exempt from the overtime protections of the FLSA. (Christopher v. SmithKline Beecham Corp. d/b/a Glaxo SmithKline,U.S. No. 11-204, 6/18/12).
The majority, in a 5-4 opinion written by Justice Alito, held that the pharmaceutical sales representatives made sales within the meaning of the FLSA and, therefore, were exempt “outside salesmen.” The court reasoned that the petitioners were hired for their sales experience, trained to close each sales call by obtaining the maximum commitment possible from the physician, worked away from the office with minimal supervision, were rewarded for their efforts with incentive compensation, and earned an average of more than $70,000 per year. The court further reasoned that given the unique regulatory environment within which pharmaceutical companies must operate, “[o]btaining a nonbinding commitment from a physician to prescribe one of respondent’s drugs,” is the kind of arrangement which comfortably falls within the “outside sales” exemption to the FLSA.
In reaching this decision, the court rejected the DOL’s current interpretation of its regulations – that a sale demands a transfer of title – because it “plainly lacks the hallmarks of thorough consideration” and would result in the kind of “unfair surprise” against which this court has long warned. Because the DOL first announced its view that pharmaceutical sales reps are not outside salesmen in a series of amicus curiae briefs, rather than formal rulemaking procedures, there was no opportunity for public comment. The court also noted that until 2009, the pharmaceutical industry had little reason to suspect that its longstanding practice of treating sales reps as exempt transgressed the FLSA, given the DOL’s acquiescence in initiating any enforcement actions.
Given this decision, perhaps the DOL will think twice before sidestepping its formal rulemaking procedures in the future. While this case provides guidance for employers in the pharmaceutical industry, all employers should be mindful of any other DOL interpretations concerning their industry and consider how those interpretations impact their wage and hour polices and procedures. Employers with questions or concerns regarding the impact of any DOL interpretations should reach out to their labor and employment attorney.