Pharmaceutical Sales Representatives Are Not Entitled To Overtime Wages

July 10, 2012

On June 18, 2012, the United States Supreme Court issued its long-awaited decision in Christopher v. Smithkline Beecham Corp., –S.Ct.–, 2012 WL 2196779 (June 18, 2012), and held that the pharmaceutical sales representatives, also known as “detailers,” qualify as “outside salesmen” under the Fair Labor Standards Act (“FLSA”), and thus, they are not entitled to overtime wages.

The plaintiffs in Christopher were pharmaceutical sales representatives.  As such, they visited doctors’ offices, encouraging them to prescribe their companies’ drugs to their patients.  Pharmaceutical sales representatives, however, do not actually sell anything to the doctors.  The plaintiffs often worked more than 40 hours per week, but they did not receive time-and-a-half for the overtime work.  The plaintiffs, therefore, sued their employer for overtime pay.  In turn, the defendant argued that pharmaceutical sales representatives are not entitled to overtime pay because they qualify as “outside salesmen,” and thus, are exempt from the FLSA’s overtime requirement.

In enacting the FLSA, Congress delegated authority to the Department of Labor (“DOL”) to issue interpretative regulations.  The DOL’s regulations provide that to qualify as an “outside salesman,” the employee’s primary duty is to make sales within the meaning of the statute.  The statute defines a sale to include “any sale, exchange, contract to sell, consignment for sale, shipment for sale or other disposition.”  The DOL’s regulations further provide that a sale includes the transfer of title to tangible property.  The DOL filed an amicus brief in this matter stating that to qualify as an outside salesman, there must be an actual transfer of title to the property at issue.  As a result, the DOL stated that the regulations do not exempt pharmaceutical companies from paying its sales representatives overtime wages.

In reaching its decision, the Court disregarded the DOL’s interpretation of an “outside salesman” under the FLSA.  Although courts generally defer to agencies’ interpretations of statutes and of their own regulations, the Court withheld deference because the DOL’s interpretation would result in “unfair surprise” on the pharmaceutical industry, which has been engaging in this practice for over 70 years.  Specifically, the DOL did not provide an opportunity for public comment, but first announced in its amicus brief that the definition of sale required the transfer of title and that pharmaceutical sales representatives are not exempt from overtime wages.  The Court also found that the DOL’s interpretation was plainly inconsistent with the FLSA.  The FLSA defines sale to include both a “consignment for sale,” which, by definition, does not involve a change of title, and the catchall phrase “other disposition.”  Employing traditional tools of interpretation, the Court found that obtaining a nonbinding commitment from the doctor to prescribe certain drugs was the equivalent of a sale in such a highly regulated industry.

This case is significant for two reasons.  First, this decision confirms that pharmaceutical sales representatives, as well as other workers who perform similar “promotional” work, qualify as “outside salesmen,” and thus, are exempt from the FLSA’s overtime requirement.  Second, this decision demonstrates that courts will not necessarily defer to the agency authorized to interpret and implement a statute.  Consulting experienced employment counsel, therefore, is essential when drafting policies and ensuring compliance with state and federal law because blindly following an agency’s interpretation may not necessarily be the most prudent course of action.

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