19 Jun Supreme Court Holds Pharmaceutical Sales Reps Are Exempt Outside Sales Employees
On June 18, 2012, the U.S. Supreme Court issued its long awaited opinion in Christopher v. Smith Kline Beecham Corp. finding that Pharmaceutical Sales Reps (“PSRs”) were exempt from the overtime requirements of the Fair Labor Standards Act.
The PSRs claimed that they were not within the “outside sales” exemption because their primary duty was not “sales” of the prescription drugs to the ultimate end users (patients). Instead, the PSRs only deliver and explain to doctors the educational and marketing materials for the drugs, rather than making sales.
The employer admitted that PSRs were barred by federal law from selling prescription drugs because they were not pharmacists or doctors. However, PSRs engaged in “selling” to physicians who were the “real customers” because doctors are the only people authorized by law to write prescriptions and facilitate sales to the end users. While PSRs did not transfer title of the product to doctors, PSRs’ primary duty was to sell by encouraging physicians to write prescriptions for the company’s products which resulted in sales.
The decision also significantly refuses to defer to the U.S. Department of Labor’s change in position on the outside sales exemption. The DOL had acquiesced to the industry’s treatment of PSRs as exempt for over 70 years, and only in a recent 2009 amicus brief in another Second Circuit case adopted this more restrictive view of the “outside sales” exemption.
The Christopher ruling is an important victory for employers in interpreting the “outside sales” exemption in a functional context. This may be applicable to other industries and jobs. It also provides employers a strong precedent for arguing that a new DOL regulatory interpretation is an unfair retroactive imposition of liability that is not due deference by the courts.
By Don Benson