WASHINGTON, D.C. - (Mealey's) A pharmaceutical sales
representative, or detailer, falls under the U.S. Department of Labor's (DOL)
definition of an "outside salesman" and is not owed overtime compensation, a
split U.S. Supreme Court ruled on June 18, rejecting the DOL's interpretation
of its own regulations (Michael Shane Christopher, et al. v. SmithKline
Beecham Corporation, dba GlaxoSmithKline, No. 11-204, U.S. Sup.; See May
2012, Page 9) (lexis.com subscribers may access Supreme Court briefs and the opinion for this case).
"We find the DOL's interpretation of its regulations
quite unpersuasive. The interpretation to which we are now asked to
defer-that a sale demands a transfer of title-plainly lacks the hallmarks of
thorough consideration. . . . This new interpretation is flatly
inconsistent with the FLSA [Fair Labor Standards Act], which defines 'sale' to
mean, inter alia, a 'consignment for sale.' A 'consignment for
sale' does not involve the transfer of title. . . . The DOL cannot
salvage its interpretation by arguing that a 'consignment for sale' may eventually
result in the transfer of title (from the consignor to the ultimate purchaser
if the consignee in fact sells the good). Much the same may be said about
a physician's nonbinding commitment to prescribe a particular product in an
appropriate case. In that situation, too, agreement may eventually result
in the transfer of title (from the manufacturer to a pharmacy and ultimately to
the patient for whom the drug is prescribed)," Justice Samuel Anthony Alito Jr.
wrote for the majority.
The majority also rejected the sales reps' claim that
they should be classified as nonexempt promotional employees who merely
stimulate sales made by the others rather than as exempt outside
salesmen. "Petitioners' theory seems to be that an employee is properly
classified as a nonexempt promotional employee whenever there is another
employee who actually makes the sale in a technical sense. But, taken to
its extreme, petitioners' theory would require that we treat as a nonexempt
promotional employee a manufacturer's representative who takes an order from a
retailer but then transfers the order to a jobber's employee to be filled, or a
car salesman who receives a commitment to buy but then asks his or her
assistant to enter the order into the computer. This formalistic approach
would be difficult to reconcile with the broad language of the regulations and
the statutory definition of 'sale,' and it is in significant tension with the
DOL's past practice," Justice Alito added.
Chief Justice John G. Roberts Jr. and Justices Antonin
Scalia, Anthony M. Kennedy and Clarence Thomas joined in the opinion.
GlaxoSmithKline hired Michael Christopher and Frank
Buchanan as pharmaceutical sales reps (PSRs) in 2003. Christopher was
terminated in May 2007, and Buchanan left Glaxo when he accepted a PSR position
at another pharmaceutical company.
Glaxo uses its PSRs to call on physicians and encourage
them to prescribe Glaxo products. During the calls, PSRs provide the
physicians with information about Glaxo's products and product samples and try
to persuade the physicians to prescribe Glaxo products over competitors'
PSRs usually work outside of a Glaxo office and spend
most of their time traveling to see physicians. Christopher and Buchanan
visited eight to 10 physicians each day. They claimed that they worked 10
to 20 hours extra per week and received no overtime wages. When not
visiting with physicians or traveling to and from their appointments,
Christopher and Buchanan claimed, they were studying Glaxo products, preparing
presentations, answering calls, checking email, generating reports and
attending various events on evenings and weekends.
Glaxo's PSRs receive two forms of pay: a salary and
incentive-based compensation. The incentive-based compensation is paid if
Glaxo's market share for a particular product increases in a PSR's territory,
if sales volume for a product increases, if sales revenue increases or if the
dose volume increases. Glaxo aims to have 25 percent of a PSR's total
compensation come from incentive-based pay. However, incentive-based
compensation is uncapped.
Christopher and Buchanan filed a class complaint against
Glaxo in the U.S. District Court for the District of Arizona in August 2008,
seeking unpaid overtime. Both parties moved for summary judgment, and the
plaintiffs moved to certify a conditional class.
The District Court granted Glaxo's motion for summary
judgment, opining that PSRs "unmistakably fit within the terms and spirit of"
the FLSA's outside sales exemption. Christopher and Buchanan then moved
to alter or amend the judgment based on the District Court's failure to
consider an amicus brief filed by the U.S. secretary of Labor in an FLSA
appeal that was pending at that time before the Second Circuit, In re
Novartis Wage & Hour Litig. (611 F.3d 141 [2d Cir. 2010]). The
District Court rejected the plaintiffs' argument that the DOL brief was
entitled to deference under either Chevron U.S.A., Inc. v. Natural Resources
Defense Council, Inc. (467 U.S. 837 ) or Auer v. Robbins (519
U.S. 452 ). Christopher and Buchanan appealed.
Affirming the District Court's ruling, the Ninth Circuit
panel opined in February 2011 that it must ignore the secretary of Labor's
brief. Christopher and Buchanan then petitioned the Supreme Court.
Justice Stephen G. Breyer filed an opinion dissenting
from the majority. He opined that the drug company employees in question
do not fall under the DOL's "outside salesman" definition.
"What the detailer does is inform the doctor about the
nature of the manufacturer's drugs and explain their uses, their virtues, their
drawbacks, and their limitations. The detailer may well try to convince
the doctor to prescribe the manufacturer's drugs for patients. And if the
detailer is successful, the doctor will make a 'nonbinding commitment' to write
prescriptions using one or more of those drugs where appropriate. If
followed, that 'nonbinding commitment' is, at most, a nonbinding promise to
consider advising a patient to use a drug where medical indications so indicate
(if the doctor encounters such a patient), and to write a prescription that
will likely (but may not) lead that person to order that drug under its brand
name from the pharmacy. . . . Where in this process does the detailer sell
the product? At most he obtains from the doctor a 'nonbinding commitment'
to advise his patient to take the drug (or perhaps a generic equivalent) as
well as to write any necessary prescription. . . . [O]ther than in
colloquial speech, to obtain a commitment to advise a client to buy a
product is not to obtain a commitment to sell that product, no matter
how often the client takes the advice (or the patient does what the doctor
recommends)," Justice Breyer wrote.
Justices Ruth Bader Ginsburg, Sonia Sotomayor and Elena
Kagan joined in the dissent.
Thomas C. Goldstein of Goldstein & Russell in Washington and Michael R. Pruitt of Jackson White in Mesa, Ariz.,
represent Christopher and Buchanan. Paul D. Clement of Bancroft in Washington and Neal D. Mollen of Paul Hastings in Washington represent
Cory L. Andrews of Washington Legal Foundation in Washington filed an amicus
brief on behalf of the Washington Legal Foundation, the Allied Education
Foundation and the CATO Institute. Jeffrey S. Bucholtz of King &
Spalding in Washington
filed an amicus brief on behalf of Pharmaceutical Research and Manufacturers
of America. Aashish Y. Desai of Desai Law Firm in Irvine, Calif.,
filed an amicus brief on behalf of a certified class of pharmaceutical
representatives from Johnson & Johnson. Michael R. DiChiara of
DiChiara Law Firm in Park Ridge,
N.J., filed an amicus
brief on behalf of pharmaceutical representatives. John C. Eastman of the
Center for Constitutional Jurisprudence in Orange, Calif.,
filed an amicus brief on behalf of the Center for Constitutional
Kevin M. Kraham of Littler Mendelson in Washington filed an amicus brief on
behalf of National Federation of Independent Business Small Business Legal
Center. Matthew W. Lampe of Jones Day in New York
filed an amicus brief on behalf of Chamber of Commerce of the United States of America.
Paul W. Mollica of Outten & Golden in New York filed an amicus brief on
behalf of National Employment Lawyers Association and National Employment Law
Project. Sarah M. Shalf of Emory Law School Supreme Court Advocacy
Project in Atlanta
filed an amicus brief on behalf of medical professionals. Rae T.
Vann of Norris, Tysse, Lampley & Lakis in Washington filed an amicus brief on
behalf of Equal Employment Advisory Council.
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