Labor and Employment Law

Working Late -- Are Pharmaceutical Sales Representatives Entitled to Overtime?

In Christopher v. SmithKline Beecham Corp., the United States Supreme Court held that pharmaceutical sales representatives ("PSRs," also known as "detailers") qualify as "outside salesmen" exempt from minimum wages and overtime under the Fair Labor Standards Act (FLSA). The plurality decision resolved a conflict among the circuits as to whether PSRs "make sales" within the meaning of the outside sales exemption.

Excerpt: In Christopher v. SmithKline Beecham Corp., by a five to four vote, the United States Supreme Court held that PSRs are exempt from overtime wages within the meaning of the FLSA's outside sales exemption. Justice Alito authored the opinion of the Court. Justice Breyer filed a dissenting opinion, in which Justices Ginsburg, Sotomayor and Kagan joined.

The FLSA exempts "outside salesmen" from minimum wages and overtime but fails to define the scope of the exemption. The regulations, in part, define "outside salesman" to mean "any employee. . .[w]hose primary duty is. . . making sales within the meaning of [Section 3(k) the FLSA]."

At the heart of the controversy were two interpretative regulations which define "[s]ales within the meaning of [the FLSA to] include the transfer of title to tangible property" and which distinguish between promotional activities that are exempt, because they relate to an employee's own sales, and promotional activities that are non-exempt, because they relate to sales made by others.

The Court viewed PSR work as sales-related and, thus, within the scope of the exemption, in contrast to the dissent, who viewed that work as primarily promotional in nature. Generally, PSRs influence physicians and hospitals to prescribe their company's products to patients, who ultimately purchase those products at the pharmacy level. Medical providers do not (and under federal law, cannot) purchase drugs from PSRs directly. PSRs, therefore, fail to sell or obtain orders in the traditional sense.

But in the words of the Court, PSRs "bear all the external indicia of salesmen." They are trained in sales techniques, directly influence their company's sales volume, and earn commissions or other incentive-based compensation based on the number of prescriptions written by physicians within their territories. These and other factors influenced the Court to conclude that PSRs qualify for the outside sales exemption, since they "make sales" within the meaning of Section 3(k) of the FLSA. The Court rejected the DOL's contrary interpretation as "quite unpersuasive" and "flatly inconsistent" with the language of the FLSA. [Footnotes omitted.]

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