Resolving a split in the lower courts, the U.S. Supreme Court has ruled that pharmaceutical sales representatives (“PSRs”) are not entitled to overtime pay when they work more than 40 hours a week. The decision provides much needed clarity for employers in the pharmaceutical industry.
In Christopher v SmithKline Beecham Corp., DBA GlaxoSmithKline, the Supreme Court ultimately concluded that PSRs fall under the “outside sales exemption” of the Fair Labor Standards Act (FLSA), even though they do not make “sales” in the traditional sense. Due to strict industry regulations, PSRs are not permitted to sell drugs directly to physicians, but may only try to persuade physicians to write prescriptions for the products when appropriate.
As the Supreme Court highlighted, Department of Labor regulations define an outside salesman as any employee whose primary duty is “making any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” The Court held that the activities of PSRs fall under this broad definition. As explained by the Court, “Obtaining a nonbinding commitment from a physician to prescribe one of respondent’s drugs is the most that petitioners were able to do to ensure the eventual disposition of the products that respondent sells. This kind of arrangement, in the unique regulatory environment within which pharmaceutical companies must operate, comfortably falls within the catchall category of ‘other disposition.’”
The Department of Labor had argued otherwise, interpreting a “sale” to require a transfer of title. However, and of significance, the Supreme Court refused to give deference to the DOL’s interpretation, as is customary when an agency has drafted the regulations at issue.
The Court specifically noted that the DOL had permitted pharmaceutical companies to classify PSRs as outside sales reps for over sixty years, only reversing its position in a 2009 amicus brief. The Court characterized the agency’s reversal as an “unfair surprise,” noting that the change in position was articulated through a lawsuit and not an official rulemaking. As the Court stated, “To defer to the agency’s interpretation in this circumstance would seriously undermine the principle that agencies should provide regulated parties fair warning of the conduct a regulation prohibits or requires.”
This case is a significant victory for all employers because it shows that the Supreme Court is willing to look beyond the regulatory interpretations proffered by the DOL and examine the unique circumstances of a particular industry. As well-stated in the June 18th issue of Forbes, “Congress leaves broad discretion to administrative agencies to decide how to implement the law, the court noted, but businesses also have a right to be protected against sudden and arbitrary changes.”
Beth Lincow Cole is committed to helping employers comply with federal and state employment law and avoid potential business-wrecking lawsuits. If your company needs guidance on overtime pay or other employee pay issues under the FLSA or applicable state law, contact employment law attorney Beth Lincow Cole.