April 25, 2012  |  By: Gina M. Schneider, Esq.

The scene is set for the U.S. Supreme Court to decide whether pharmaceutical sales representatives qualify for the FLSA’s outside sales overtime exemption. This month the Court heard oral argument in Christopher v. SmithKline Beecham Corp. (on appeal from the 9th Circuit) and ultimately must determine whether sales representatives who personally do not close any actual product sales can qualify for this overtime exemption. The Court will also likely decide how much deference the courts should give to the U.S. Department of Labor’s interpretation of its regulations, and in particular to policy pronouncements in DOL amicus briefs, as opposed to formal rule-making.  The Court’s decision will resolve a split in the circuits. The 2nd Circuit recently deferred to the DOL’s interpretation and held that pharmaceutical sales representatives are entitled to overtime compensation whey they work more than 40 hours in a workweek, while the 9th Circuit rejected the DOL’s position and found the sales representatives exempt from overtime. Historically, drug industry employers have classified their sales representatives as exempt outside salespersons.  This 75-year old practice was not challenged by the DOL until recently when it opined that the current generation of pharmaceutical sales representatives do not “make sales” because they do not transfer title to or physically sell drugs to patients. The Justices appeared divided on whether a sale must include a binding commitment or transfer of title, and how to apply the concept of a sale to the drug industry where the sales representative cannot consummate a sale in the traditional sense because of the special nature of the product. On the issue of the weight to be given DOL policy pronouncements expressed in amicus briefs, several Justices expressed concerns with the DOL’s failure to engage in formal rulemaking, and others struggled with DOL’s failure for 70 years to take action against the industry practice of treating its sales representatives as exempt. The Court’s decision is expected by late June. If the Court defers to the DOL’s interpretation, pharmaceutical companies stand to pay potentially billions of dollars in retroactive overtime pay to the industry’s approximately 90,000 sales representatives and will be forced to reevaluate their sales representatives’ level of autonomy and determine how to track their hours going forward.  The decision may have repercussions in other industries that employ salespersons who perform tasks in furtherance of sales but do not make binding sales commitments or transfer title to goods. If you have any questions about overtime pay requirements, contact Patrick McGovern, Esq. or John Vreeland, Esq. in our Labor Law Practice Group.

Tag: Wage and Hour, Fair Labor Standards Act