Last year, the Second Circuit Court of Appeals deferred to a new Department of Labor interpretation of the Fair Labor Standards Act, and concluded that pharmaceutical sales representatives are not "Outside Salespersons" exempt from overtime pay requirements. Last month, the Ninth Circuit Court of Appeals reached the opposite conclusion, finding that the reps fall within the scope of the exemption.
In Christopher v. SmithKline Beecham Corp., the plaintiffs were former sales reps who claimed that they were not compensated for overtime worked. Their main legal contention was that the Outsides Sales exemption does not apply to pharmaceutical reps, because they market the products to physicians, and not to anyone who actually buys drugs. Physicians may prescribe controlled substances, but they do not buy or sell the drugs themselves. Promotional activities that do not directly lead to sales are generally considered non-exempt.
The Ninth Circuit rejected this position, finding that the sales reps engaged in traditional sales activities. For the pharmaceutical industry, the structure and realities of this heavily regulated industry compel a conclusion that marketing to physicians is sales work. Because federal law prohibits the industry from directly selling its products to patients, the physician who prescribes the drugs is functionally equivalent to a purchaser. The sales reps' activities with physicians result in sales to patients. Any other conclusion ignores the realities of the industry.
This decision creates a split among federal appellate courts. Earlier this week, the U.S. Supreme Court declined to hear the appeal of the earlier Second Circuit decision. This means that for the time being, pharmaceutical employers with operations in multiple states may need to classify reps differently depending on their locations. The Ninth Circuit's reasoning may also apply to other industries where direct sales to end use customers or wholesalers are not the usual means of distribution.