In August 2008, sales representatives from GlaxoSmithKline PLC filed a class action against the company, claiming they were non-exempt and entitled to overtime pay. They had always been treated as exempt by the company under the FLSA’s outside sales exemption. However, they argued, in part, that their exempt classification was improper because they do not actually "make" any sales. Rather, they argued, they simply present information to physicians regarding the company’s drugs in the hope the physicians will then prescribe those drugs. The sales representatives do not actually sell the drugs to anyone.
The employees lost at the District Court level and appealed to the Ninth Circuit Court of Appeals. Recently, a three-judge panel of the Ninth Circuit upheld the lower court’s ruling. Contrary to the representatives’ argument, the Ninth Circuit found that the sales representatives do "make" sales because they visit certain physicians in defined geographic areas, ask those physicians to commit to prescribing certain drugs, and receive bonuses based on how well those specific drugs sell in their defined geographic regions. The Court reasoned that because patients typically do not select what drugs their physicians prescribe, the real sale occurs between the sales representative and the physician, not the pharmacy and the patient.
This case, Christopher et al. v. SmithKline Beecham Corp., 9th Cir. No. 10-15257, was one of first impression in the Ninth Circuit, but the decision creates a split with the Second Circuit, which has held similar employees to be non-exempt. The U.S. Department of Labor has also issued guidance stating that pharmaceutical sales representatives are not covered under the outside sales exemption. Unless and until the Supreme Court addresses this issue or other appellate courts chime in, companies in the pharmaceutical and medical device industry, as well as other businesses that use a similar sales model, should still proceed cautiously in classifying their sales representatives.