Supreme Court Holds Pharmaceutical Sales Representatives Not Entitled to Overtime Pay

The Supreme Court held today in its long-anticipated decision in Christopher v. SmithKline Beecham Corporation that pharmaceutical sales representatives are not entitled to overtime pay under the Fair Labor Standards Act, as reported by the Wall Street Journal.
The 5-4 decision, penned by Justice Samuel Alito, was a relief for pharmaceutical giant defendant, GlaxoSmithKline, allowing it to avert massive retroactive liability from its thousands of pharmaceutical sales representatives. This case also resolves a Circuit split on the issue, which had left drug companies around the country unsure of their responsibilities under the Act. For the pharmaceutical sales representative plaintiffs, as well as those in the industry as a whole, this decision dealt a massive blow however. Oftentimes working up to 60 hours a week, pharmaceutical sales representatives have often been expected to work almost non-stop in a role that many commentators and the Department of Labor have argued did not deserve exemption under the FLSA. This case as such stands as a step back for employee rights across the nation on the very contentious issue of employer liability for overtime pay.
Christopher v. SmithKline Beecham Corporation involved the case of two pharmaceutical sales representatives for GlaxoSmithKline who filed suit for overtime compensation they had not been paid under the Federal Labor Standards Act. These representatives had worked upwards of 50 to 60 hours a week calling on doctors to encourage them to prescribe GlaxoSmithKline prescription drugs whenever appropriate. Called “detailing” this promotion of pharmaceutical products has become a billion-dollar industry, with over 90,000 pharmaceutical representatives working nationwide. Plaintiffs were paid on a salary basis, did not punch in and out and had minimal supervision. GlaxoSmithKline did not dispute that plaintiffs and their other pharmaceutical sales representatives worked over 40 hours a week and were not paid overtime at time and a half over the 40 hours as required for most workers under the Fair Labor Standards Act. Instead, the company claimed an exemption from the FLSA, arguing that the two plaintiffs and its other pharmaceutical sales representative employees were exempted salesmen under the Act. Under § 213(a)(1) of the Fair Labor Standards Act, those who work “in the capacity of outside salesman” are exempted from the overtime requirements of the Fair Labor Standards Act. The Supreme Court facing differing rulings from the Second and Ninth Circuits finally resolved the split of authority in finding that pharmaceutical sales representatives like the plaintiffs in this case did indeed qualify under this exemption.
In finding that pharmaceutical sales representatives were exempted as salespeople under §213(a)(1), the Supreme Court declined to defer to the Department of Labor’s interpretation of its own regulations on the issue. The Supreme Court found that the Department of Labor’s position that pharmaceutical sales representatives were “outside salesm[e]n” exempted from the Fair Labor Standards Act was not entitled to the high deference usually afforded to agency interpretations of their own regulations under the Supreme Court precedent in Auer v. Robbins, because the position was not a fair reflection of a considered judgment. In finding this, the Supreme Court conceded that the Department of Labor had consistently held that pharmaceutical sales representatives were not exempted salesmen under the FLSA, but found it problematic that the DOL had presented differing reasons over the years for why. The Supreme Court was especially skeptical of the Department of Labor’s position in their amicus curiae brief, which had the DOL claiming that salespeople must actually be involved in the transfer of title of goods for them to be exempted under the FLSA.
While the Supreme Court grounded its ruling mostly on administrative law issues of agency deference and interpretation, the Court also noted substantive issues in finding that pharmaceutical sales representatives were exempted salespeople. First, the Court found that the fact that pharmaceutical sales representatives were paid so highly provided evidence that they were not who the act was intended to protect. Second, the Court found that the pharmaceutical representatives were involved in sales under the Act because not only did they promote the pharmaceutical products to physicians, they were also paid on commission based on how many prescriptions were ordered within their sales zone. According to the Court, although the pharmaceutical sales representatives did not actually close sales, and only secured non-binding commitments from physicians to prescribe drugs when appropriate, as this was the maximum sales conduct the representatives were allowed under the federal drug laws, they were still salesmen under the FLSA.
In making its ruling the Court also was concerned about the “unfair surprise” finding pharmaceutical sales representatives eligible for overtime would create for the pharmaceutical industry. Although the Department of Labor had always held that pharmaceutical sales representatives were not exempted under the FLSA, the fact that the agency never prosecuted overtime violations by the pharmaceutical industry was a reason to bar them from setting forth such a claim now. The Court also noted that with over 90,000 pharmaceutical sales representatives across the country, that would create massive liability. In the back of the Court’s mind, of course, was January’s $99 million settlement by Novartis for overtime claims by its pharmaceutical sales representatives following the Second Circuit’s 2010 decision in In re Novartis Wage & Hour Litig., and similar pending cases against Johnson & Johnson, Merck Co. and Bristol-Myers Squibb.
In making its ruling the Supreme Court did not consider the employee’s perspective however, making this one of the largest setbacks for employee rights to come out of the Supreme Court this term. The over 90,000 pharmaceutical sales representatives across the country are not entitled to any less protection under the FLSA because of their higher median incomes or the fact that the Department of Labor was lax in its enforcement of its own regulations. The FLSA was passed to provide across-the-board protections for almost all workers across the United States from exploitation by employers. As any working professional knows, highly paid workers are not exempt from wage and hour exploitation. Recognizing the apparent universality of employer exploitation of workers, across all industries and salary levels, Congress allowed only very narrow exemptions to the overtime provisions of the Fair Labor Standards Act, usually for those positions like that of bona fide salesperson, for which work and hours are usually too discretionary to be monitored by employers. The fact that the Supreme Court did not undertake the appropriate analysis to determine whether pharmaceutical sales representatives actually are bona fide salespeople under the FLSA is a loss for employees and those supportive of employee rights across the country.

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