Employers are closer to a nation-wide rule on the appropriate classification of pharmaceutical sales representatives (PSRs). On Monday, the Supreme Court granted cert to resolve a split between the Ninth and Second Circuits on whether PSRs are covered by the outside sales exemption of the Fair Labor Standards Act (FLSA).
In February, we covered the Ninth Circuit’s decision in Christopher et al. v. SmithKline Beecham Corp., where it held that GlaxoSmithKline’s PSRs were properly classified as exempt. In that decision, the Ninth Circuit disagreed with the Second Circuit, which in 2010 held such employees to be non-exempt in In re Novartis, and in doing so, deferred to Department of Labor guidance that required direct sales by employees for the exemption to apply. The Supreme Court previously declined to hear the appeal of the Novartis decision.
Underlying the differing interpretations is the unique way in which PSRs make "sales." Unlike how most of us think sales forces traditionally work, PSRs are prohibited by federal law to sell drugs directly to anyone, including doctors. Instead, PSRs do their selling through in-person visits to physicians. These visits involve PSRs educating doctors about the benefits of their products relative to competition, providing samples, and obtaining commitments from doctors to write prescriptions for appropriate patients. Ultimately, PSRs’ efforts are geared toward increasing prescriptions written by doctors which in turn will increase overall purchases of the drugs by patients through pharmacies. PSRs’ compensation, including commissions and bonuses, is often based upon the number of prescriptions in the geographic sales territory for which the PSR responsible. Whether this indirect sales relationship falls within the scope of the FLSA’s sales exemption is at the heart of the disagreement between the Ninth Circuit’s and Second Circuit’s (and the DOL’s) interpretations.
For employers facing the unsustainable situation of being liable for overtime for PSRs on the east coast but not on the west coast (and uncertainty exists everywhere else), the cert grant in this case is a welcome result. A decision from the Supreme Court is expected by summer 2012.