Pharmaceutical Sales Representatives Are Not Eligible For Overtime Pay, Holds U.S. Supreme Court

The federal Fair Labor Standards Act, 29 U.S.C. §§ 201-219 (the “FLSA”), and its implementing regulations, 29 C.F.R. §§ 510 et seq., mandate that most employees in the U.S. be paid overtime compensation at 1½ times the regular rate of pay for all hours worked in excess of 40 hours in a workweek.

However, the FLSA sets forth an exemption from overtime pay for employees “employed . . . in the capacity of outside salesman.” FLSA § 13(a)(1), 29 U.S.C. § 213(a)(1).

In June 2012, in Christopher v. Smithkline Beecham Corp., No. 11-204 (U.S. June 18, 2012) (Alito, J.), the U.S. Supreme Court, by a 5-4 margin, that “pharmaceutical sales representatives whose primary duty is to obtain nonbinding commitments from physicians to prescribe their employer’s prescription drugs in appropriate cases,” are ” ‘outside salesm[e]n’ ” within the meaning of section 13(a)(1) of the FLSA. Smithkline Beecham, No. 11-204, slip op. at 1. That is, the Smithkline Beecham Court held that, under federal law, pharmaceutical sales representatives, also known as pharmaceutical detailers, are not eligible for overtime pay.

The SmithKline Beecham Court declined to grant deference to, and rejected as “quite unpersuasive,” the U.S. Department of Labor’s amicus brief’s position that ” ‘[a]n employee does not make a ‘sale’ for purposes of the ‘outside salesman’ exemption unless he actually transfers title to the property at issue.’ ” Smithkline Beecham, No. 11-204, slip op. at 9.

In rejecting the Labor Department’s stance, the U.S. Supreme Court reasoned in part that 29 C.F.R. §§ 541.501, 541.502 define the statutory term ” ’employee employed in the capacity of outside salesman’ ” to mean “any employee . . . [w]hose primary duty is . . . making sales within the meaning of” section 3(k) of the FLSA; and that section 3(k) of the FLSA, in turn, states that ” ‘[s]ale’ or ‘sell’ includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” 29 U.S.C. § 203(k) (emphasis added). See Smithkline Beecham, No. 11-204, slip op. at 2-3.

The Smithkline Beecham Court explained that “the broad catchall phrase ‘other disposition,’ ” see FLSA § 3(k), 29 U.S.C. § 203(k), “could reasonably be construed to encompass a nonbinding commitment from a physician to prescribe a particular drug.” Smithkline Beecham, No. 11-204, slip op. at 12.

In holding that pharmaceutical sales representatives are overtime-exempt outside salesmen, the U.S. Supreme Court overruled the contrary holding of the U.S. Court of Appeals for the Second Circuit — the federal court of appeals whose decisions bind federal trial courts sitting in New York State — in In re Novartis Wage and Hour Litigation, 611 F.3d 141 (2d Cir. 2010).

In the passage of the Smithkline Beecham decision that may be of the greatest importance in overtime compensation cases brought by workers other than pharmaceutical detailers, the U.S. Supreme Court held that “the catchall phrase ‘other disposition’ [, FLSA § 3(k), 29 U.S.C. § 203(k), ] is most reasonably interpreted as including those arrangements that are tantamount, in a particular industry, to a paradigmatic sale of a commodity.” Smithkline Beecham, No. 11-204, slip op. at 19.

To put it another way, the U.S. Supreme Court, in Smithkline Beecham, exhibited a willingness to defer to a given industry’s widespread practice as to whether a particular job category makes “sales” for purposes of rendering that job category exempt, under the outside salesman exemption, from receiving overtime compensation.

Call the Law Offices of David S. Rich, LLC at (347) 835-5688 to speak with a knowledgeable labor and employment lawyer about ensuring that your company complies with overtime pay and other wage and hour laws, or to retain a skilled overtime attorney to defend your company in unpaid overtime lawsuits or other wage and hour litigation.