The U.S. Supreme Court handed the pharmaceutical industry a huge victory in the battle over whether pharmaceutical sales representatives are entitled to overtime under the Fair Labor Standards Act (“FLSA”). The pharmaceutical industry took the position that its sales representatives were exempt from the FLSA’s overtime requirements as exempt outside salespeople. The sales representatives argued that they were merely promotional employees and not salespeople. In Christopher v. Smithkline Beecham, the Court held that the primary duty of pharmaceutical sales representatives, a/k/a detailers, is to obtain nonbinding commitments from physicians to prescribe their employer’s drugs and that they therefore qualify as exempt outside salespeople.
The issue the Court had to determine was whether the activities the pharmaceutical sales reps engage in falls within the meaning of “sales.” Although the Court determined that the detailers do engage in sales, the interesting part of the decision was how the Court reached its decision and how it may impact other cases when exempt status is an issue. Quoting the Department of Labor’s own words, the Court stated that exempt status should not depend on technicalities. The Court refused to give deference to the DOL’s interpretation of its regulations because (1) the DOL’s interpretation of whether pharmaceutical reps are exempt came after many lawsuits seeking overtime had been filed and exposed the industry to potentially massive liability, (2) for decades, the pharmaceutical industry treated pharmaceutical reps as exempt and the DOL never initiated enforcement or suggested that the practice was unlawful, and (3) the DOL’s after-the-fact interpretation was inconsistent with the language of the FLSA. The Court also said that the language of the FLSA favors a functional, rather than a formal, inquiry regarding exempt status. Further, the analysis of an employee’s exempt status should consider the employee’s responsibilities in the context of the particular industry in which the employee works. The Court found that the detailers had the external indicia of salespeople – they were hired for their sales experience, they were trained to close sales, they worked away from the office with minimal supervision, and they received incentive compensation. The Court said that the pharmaceutical sales reps were hardly the type of employees the FLSA was intended to protect – they earned salaries well above the minimum wage, averaging more than $70,000 a year.
The Court’s analysis and language should offer employers with ammunition to argue against an overly technical and formulistic application of the DOL’s regulations in favor of a realistic approach that takes into account the particular industry in which the employee works.