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Supreme Court Says Pharmaceutical Reps Qualify as Outside Salespersons Under FLSA

    Client Alerts
  • June 22, 2012

In a 5-4 decision released on Monday, the U.S. Supreme Court held that pharmaceutical sales representatives fall within the "outside salesperson" exemption to the minimum wage and overtime provisions of the Fair Labor Standards Act. This decision is of key importance to the pharmaceutical industry, which employs tens of thousands of representatives who market drugs and medical devices to doctors, hospitals and other areas of the health care industry.

In Christopher v. Smithkline Beecham Corp., the plaintiffs alleged that the representatives did not meet the requirements for the outside salesperson exemption because under federal law, they are not permitted to make actual drug sales. While they market pharmaceutical products to doctors, the actual sales are consummated by other employees. At best, the representatives only receive non-binding commitments from doctors to buy the products.

The Department of Labor agreed with the plaintiffs, requiring a consummated sale in order to claim the exemption. The Supreme Court majority disagreed, rejecting DOL's reading of the exemption in favor of one that allows the pharmaceutical reps to fall within the terms of the outside salesperson classification. The Court refused to defer to DOL's position, noting that the agency had recently changed its view of this question, imposing huge potential liabilities on the industry without advance notice or opportunity to comment.

The Court also concluded that the statutory outside salesperson exemption does not require that the employee participate in transfer of title to the goods to be classified as a salesperson. Promotional work performed incidental to the actual sale qualifies for the exemption. The majority also took a functional view of the specific industry in this case, finding that the representatives' work qualified as sales in this specific context.

Apart from the pharmaceutical industry, this decision may have application to developing sales positions where the employees regularly travel, but primarily engage in marketing and promotional work rather than the final sale itself. This case also indicates that a majority of the Supreme Court will not hesitate to overrule DOL in cases where it concludes that the agency's interpretation of the FLSA rules suddenly changes from a previously established position.