On June 18, 2012, the Supreme Court ruled in Christopher v. SmithKline Beecham (No. 11-204) that pharmaceutical sales representatives meet the outside sales exemption to the Fair Labor Standards Act (FLSA), and are therefore not entitled to overtime under the Statute. In February 2011, the Ninth Circuit had upheld District Court’s grant of summary judgment to GlaxoSmithKline, finding that the “outside sales” exemption to the FLSA applied to pharmaceutical sales representatives. Although both lower courts found that pharmaceutical representatives do not sell medications directly to patients, they concluded the salespersons’ efforts still constitute sales because they market the drugs to physicians and obtain commitments as to their use for patients. In so holding, the Ninth Circuit did not adopt the U.S. Department of Labor’s (DOL) position that pharmaceutical sales persons were entitled to overtime.
The Plaintiffs were employed by GlaxoSmithKline (“GSK”) as pharmaceutical sales representatives until 2008. During the course of their employment, they regularly worked more than forty hours per week and requested that they be paid for their overtime. When GSK refused, they sued in U.S. District Court in Arizona. The District Court granted summary judgment in favor of GSK, on the grounds that the classification of pharmaceutical sales representatives fit within the terms and spirit of the outside sales exemption. The Ninth Circuit affirmed the District Court decision.
In affirming the Ninth Circuit’s decision, the Supreme Court rejected the DOL’s argument that a “sale” requires an actual transfer of title. It found that the FLSA requires a “functional, rather than a formal, inquiry that views an employee’s responsibilities in the context of the particular industry in which the employee works,” and concluded that sales representatives’ work is “tantamount, in [this] particular industry, to a paradigmatic sale of a commodity.”
While at first blush this decision seems to primarily impact the pharmaceutical industry, it may have important implications for employers who use employees who do not directly consummate sales. Thus, it is possible that employees who facilitate or support the sales activities of others (including product specialists, service specialists, and certain marketing/promotion positions) might also be considered exempt from overtime under FLSA. The overall impact of the decision is yet to be seen, although it is good news for employers struggling with rising overtime costs in an uncertain economy.
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