The U.S. Supreme Court on June 18 ruled that pharmaceutical sales representatives are indeed outside salespeople under the terms of the Fair Labor Standards Act (FLSA) in a case that could have far-reaching effects on other wage-and-hour issues.
At first glance, the Court’s 5-4 decision in Christopher v. SmithKline seems straightforward and narrow.
The Court ruled that two sales reps for pharmaceutical giant SmithKline Beecham Corp. did work that fell under the FLSA’s outside salesperson exemption, so they weren’t entitled to receive overtime pay for working more than 40 hours in a workweek. They sued the company, demanding overtime pay, in 2008.
Their argument in a nutshell: That they weren’t really salespeople.
Unique sales environment
Pharmaceutical reps do work long hours—usually 40 per week visiting doctors to talk up the benefits of the drugs they represent and another 20 hours filling out paperwork, returning phone calls, reviewing product information and attending industry events.
And, the plaintiffs pointed out, they don’t directly sell anything. They try to persuade doctors to prescribe pharmaceutical products for patients. (Federal law prohibits anyone but a pharmacist from actually selling prescription drugs to consumers.)
On the other hand, pharmaceutical sales reps are well paid for their work, which they perform with minimal supervision and great discretion. The two plaintiffs each earned more than $70,000 per year in base pay plus incentive bonuses.
The U.S. Department of Labor, which filed a friend-of-the-court—or amicus—brief supporting the Christopher plaintiffs, argued that unless they made actual sales, the reps could not be properly considered salespeople. Therefore, it argued, they should not be exempt from FLSA overtime rules.
‘Tantamount’ to sales
That did not persuade five of the nine Supreme Court justices. Justice Samuel Alito, writing for the majority, concluded that the sales reps’ efforts were “tantamount to a sale,” as close as possible, given the laws that constrain the pharmaceutical industry’s activities.
In addition, the Court wrote that such highly paid and independent sales reps “are hardly the kind of employees that the FLSA was intended to protect.”
“Obviously, the impact of the Court’s decision will be felt most immediately in the pharmaceutical industry,” said Richard Alfred, who heads the wage-and-hour litigation practice at the Seyfarth Shaw law firm. “Dozens of pending cases around the country will likely be dismissed based on this decision. Dozens more nascent lawsuits likely will never be filed, and the tens of thousands of employees who are currently working as [pharmaceutical sales reps] will continue to be treated as exempt.”
Note: The decision comes too late for another pharmaceutical firm, Novartis, which earlier this year paid out $99 million to settle an overtime lawsuit filed by some of its sales reps.
Decision’s broad reach
Alfred and other employment law attorneys say the Christopher decision is broad enough to affect other industries and other kinds of wage-and-hour lawsuits.
That’s because the Court unanimously rebuked the Department of Labor for its litigation strategy. The Justices said the DOL’s recent practice of filing amicus briefs in high-profile cases, and then later referring to those briefs as if they had regulatory authority, was an overreach. Therefore, it said, other courts need not defer to old DOL amicus briefs when considering new wage-and-hour cases.
“This is a significant victory for employers,” said Steven F. Pockrass, co-chair of the Ogletree Deakins law firm’s Wage and Hour Practice Group. “Not only did the Court hold that the DOL’s interpretation of its outside sales representative regulations in this case was not entitled to deference, but it also held that the DOL’s interpretation was wrong.”
Alfred said, “The Court’s decision in the Christopher case potentially permits employers in all industries to classify a wider variety of employees as outside sales.”
He also predicted that the challenge to what the Supreme Court called the DOL’s “regulation by amicus” program could make it easier for employers to win wage-and-hour cases involving tip pooling and tip credits, multi-state FLSA claims, employee commissions, donning and doffing of protective gear and de minimus time.
