The U.S. Supreme Court has agreed to resolve in Christopher v. SmithKline Beecham Corp. (11-204) whether the Fair Labor Standards Act’s (FLSA) outside sales exemption applies to pharmaceutical sales representatives (PSRs). The Court also will consider whether deference is owed to the Secretary of Labor's own interpretation of the FLSA exemption and related regulations. At stake is not only how an estimated 90,000 PSRs are to be paid under the FLSA, but also the deference to be paid to amicus briefs filed by the Department of Labor (DOL).

The FLSA’s outside sales exemption relieves from the Act’s overtime requirements “any employee employed . . . in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary).” Specifically, the regulations explain that an employee who works as an outside salesman is one:

(1) Whose primary duty is: (i) making sales within the meaning of section 3(k) of the Act; or (ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and (2) Who is primarily and regularly engaged away from the employer's place or places of business in performing such primary duty.

Under section 3(k) of the FLSA, a “sale” includes “any sale, exchange, contract to sell, consignment for sale, shipment for sale or other disposition.” The DOL’s regulations elaborate that sales “include the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property.”

Another relevant DOL regulation distinguishes sales work from “promotion work.” Under the regulations, promotion work is a type of activity:

often performed by persons who make sales, which may or may not be exempt outside sales work, depending upon the circumstances under which it is performed. Promotional work that is actually performed incidental to and in conjunction with an employee’s own outside sales or solicitations is exempt work. On the other hand, promotional work that is incidental to sales made, or to be made, by someone else is not exempt outside sales work. An employee who does not satisfy the requirements of this subpart may still qualify as an exempt employee under other subparts of this rule.

There has been a split among the courts, most notably the Ninth and Second Circuits, as to whether pharmaceutical representatives’ activities constitute sales because PSRs are prohibited by law from directly selling pharmaceuticals to physicians. The DOL has consistently taken the position that PSRs do not qualify for the outside sales exemption because they do not transfer ownership or property. The Second Circuit relied heavily on and agreed with the DOL’s interpretation and assessment in a 2010 decision.

In contrast, in Christopher v. SmithKline Beecham Corp., the Ninth Circuit declined to give deference to the DOL’s “current interpretation of the regulations.” In addition to noting the district court’s refusal to consider the DOL’s interpretation because it was “inconsistent with the statutory language and its prior pronouncements, [and] [] also def[ying] common sense," the Ninth Circuit reviewed prior Supreme Court decisions on the issue and stated, among other things, that the Secretary’s interpretation of an unambiguous statute by “an opinion letter, enforcement guidelines, or the like . . . is merely ‘entitled to respect’ to the extent the interpretation has the ‘power to persuade’ the court.”

The DOL’s amicus brief did not persuade the Ninth Circuit, which concluded that PSRs did, in fact, qualify for the outside sales exemption. Specifically, the Ninth Circuit reasoned that:

Plaintiffs' contention that they do not "sell" to doctors ignores the structure and realities of the heavily regulated pharmaceutical industry. It is undisputed that federal law prohibits pharmaceutical manufacturers from directly selling prescription medications to patients. Plaintiffs suggest that despite being hired for their sales experience, being trained in sales methods, encouraging physicians to prescribe their products, and receiving commission-based compensation tied to sales, their job cannot "in some sense" be called selling. This view ignores the reality of the nature of the work of detailers, as it has been carried out for decades.

As for the DOL’s distinction between “selling” and “promoting,” the appellate court stated that such a distinction “is only meaningful if the employee does not engage in any activities that constitute ‘selling’ under the Act.” The court further reasoned that:

PSRs are driven by their own ambition and rewarded with commissions when their efforts generate new sales. They receive their commissions in lieu of overtime and enjoy a largely autonomous work-life outside of an office. The pharmaceutical industry's representatives — detail men and women — share many more similarities than differences with their colleagues in other sales fields, and we hold that they are exempt from the FLSA overtime-pay requirement.

The Supreme Court’s decision is expected to not only resolve the numerous class and collective actions that have challenged the outside sales exemption in the pharmaceutical industry, but also to provide clarity as to the appropriate deference owed to the DOL’s opinions as expressed in amicus briefs and similar interpretive position statements.