In Christopher, et al. v. SmithKline Beecham Corp., d/b/a GlaxoSmithKline, No. 11-204 (June 18, 2012), the Supreme Court held that pharmaceutical sales representatives qualify for the “outside salesman” exemption to the Fair Labor Standards Act and are, therefore, not entitled to overtime compensation for hours worked over 40 in a workweek. Because representatives do not actually sell prescription drugs, but merely try to convince physicians in their assigned territory to write prescriptions in appropriate cases (a process called “detailing”), Plaintiffs argued that the outside sales exemption did not apply to them. The DOL agreed and submitted an amicus brief, which argued that the exemption only applies where the employee actually transfers title to the property in question.
The Supreme Court disagreed with the DOL and affirmed the grant of summary judgment to Defendant. The Court held that deference was not required to the DOL position, because it amounted to “unfair surprise” in light of the longstanding industry practice of treating detailers as exempt and the massive amount of liability sought, and opined that the DOL stance was unpersuasive, because it was reached without public input and was contrary to the language of the FLSA. The Court then focused on a functional inquiry of whether the work of the detailers should qualify as sales, and found that the nonbinding commitments to prescribe drugs that the detailers obtained from physicians amounted to an “other disposition” of the property, in the context of the peculiar regulatory environment of the industry, so as to fall within the FLSA definition of sales. In addition, the Court reasoned that the purpose of the FLSA exemption would be met by applying it to the pharmaceutical sales detailers, because the FLSA assumes that exempt employees earn well above the minimum wage, perform work that is difficult to standardize to a particular timeframe, and engage in activities that cannot be easily spread to other workers. The salesmen were not the type of workers that the FLSA was enacted to protect.
Three important points arise from this opinion for all employers: 1. because the DOL is expected to recognize the Court’s criticism, employers must remain vigilant in staying abreast of the latest DOL interpretations applicable to their industry; 2. in deciding whether an exemption applies, courts should employ a functional, rather than formulaic, analysis, which will allow employers in exemption cases to argue the particular realities applicable to their industry; and 3. defendants’ arguments that the employees in question are paid well above the minimum wage, do not have a set work schedule and perform functions that cannot be assigned to other workers are entitled to careful consideration by a court when ruling on any exemption issue.
