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Congress enacted the Fair Labor Standards Act (FLSA) in 1938 with the goal of protecting all covered workers from substandard wages and oppressive working hours. Among other requirements, the FLSA obligates employers to compensate employees for hours in excess of 40 per week at a rate of 1 1/2 times the employees' regular wages. 29 U.S.C.S. § 207(a). The overtime compensation requirement, however, does not apply with respect to all employees. 29 U.S.C.S. § 213. The statute exempts workers employed in the capacity of outside salesman. 29 U.S.C.S. § 213(a)(1).
The employees were employed by Respondent SmithKline Beecham Corporation as pharmaceutical sales representatives for roughly four years, and during that time their primary objective was to obtain a nonbinding commitment from physicians to prescribe SmithKline’s products in appropriate cases. Each week, the employees spent about 40 hours in the field calling on physicians during normal business hours and an additional 10 to 20 hours attending events and performing other miscellaneous tasks. The employees were not required to punch a clock or report their hours, and they were subject to only minimal supervision. They were well compensated for their efforts, and their gross pay included both a base salary and incentive pay. The amount of incentive pay was determined based on the performance of employees’ assigned portfolio of drugs in their assigned sales territories. It is undisputed that they were not paid time-and-a-half wages when they worked more than 40 hours per week.
The employees filed suit, alleging that SmithKline violated the FLSA by failing to compensate them for overtime. SmithKline moved for summary judgment, arguing that the employees were “employed … in the capacity of outside salesman,” §213(a)(1), and therefore were exempt from the FLSA's overtime compensation requirement. The District Court agreed and granted summary judgment to SmithKline. The employees filed a motion to alter or amend the judgment, contending that the District Court had erred in failing to accord controlling deference to Department of Labor's (DOL) interpretation of the pertinent regulations, which the DOL had announced in an amicus brief filed in a similar action. The District Court rejected this argument and denied the motion. The Ninth Circuit, agreeing that the DOL's interpretation was not entitled to controlling deference, affirmed.
Does the term “outside salesman,” as defined by DOL regulations, encompass pharmaceutical sales representatives whose primary duty is to obtain nonbinding commitments from physicians to prescribe their employer's prescription drugs in appropriate cases?
The Court determined that the employees were exempt from the FLSA's overtime compensation requirement because they qualified as outside salesmen under the DOL’s regulations. The DOL's interpretation of the regulations, that a sale demanded a transfer of title, was not owed Auer deference, because the DOL never initiated any enforcement actions with respect to pharmaceutical detailers or otherwise suggested that it thought the industry was acting unlawfully. The DOL's interpretation was unpersuasive because it was flatly inconsistent with the FLSA. The Court interpreted the phrase "other disposition" and found that the employees made sales for purposes of the FLSA and therefore were exempt outside salesmen because obtaining a nonbinding commitment from a physician to prescribe one of the employer's drugs was the most that they were able to do to ensure the eventual disposition of the products that the employer sold.