Supreme Court finds pharmaceutical sales reps exempt under the outside sales exemption
In a highly anticipated decision under the Fair Labor Standards Act, the United States Supreme Court handed down a big win on Tuesday for the pharmaceutical industry when the Court found pharmaceutical sales representatives are covered by the outside sales exemption in Christopher v. Smith Kline Beecham Corp. We covered in previous posts the differing interpretations of the Second Circuit, which held the reps to be non-exempt, and the Ninth Circuit, which said they were exempt. The Court agreed with the Ninth Circuit that the sales activity pharma sales reps engaged in were sufficient "outside sales" even though federal regulation prohibits the reps from selling pharmaceutical products directly to their customers, the prescribing physicians. The nonbinding commitments obtained from physicians by sales reps were sufficient sales activity to meet the exemption, considering, as the Court stated, "the unique regulatory environment within which pharmaceutical companies must operate." The Court also stressed their interpretation was consistent with its parsing of the language of the FLSA, the FLSA regulations, and previous Department of Labor interpretations that said a sale "in some sense" had to be made.
The majority opinion had some tough language for the current DOL, however. The DOL took the position that pharma sales reps should be non-exempt because their sales activity involved no actual transfer of title and, as the federal agency charged with interpreting the FLSA and its regulations, argued that the Court should defer to its interpretation of the exemption. Finding the DOL's transfer-of-title argument "quite unpersuasive" and "flatly inconsistent with the FLSA," the Court declined to defer to the DOL.
This decision is a major victory for the pharmaceutical industry, who otherwise would have been faced with even more years of litigation and radical changes to their business model if the Court found the employees to be non-exempt. The result, however, is likely to be limited to the unique sales arrangement in this industry. As the Court noted, "when an entire industry is contracted by law or regulation from selling its products in the ordinary manner," the DOL and courts should not rely on "technicalities" to exclude employees from the outside sales exemption. Still, the Court's recognition of the sometimes impractical and draconian results under the FLSA (which many of us see everyday) is refreshing to see reflected in its decision here, despite the decision's lack of applicability to other industries.
Some commentators have suggested this decision might result in a more pragmatic, broader view of FLSA exemptions, even beyond the outside sales exemption. That broader view may be possible, particularly for courts struggling to fit a statute designed for the 1940's workplace into the 21st Century. But, until more decisions come to bear on that point, employers outside of the pharmaceutical industry should wait and see what may transpire.
