PHARMACEUTICAL SALESMEN ARE EXEMPT FROM FLSA OVERTIME REQUIREMENT

On June 18, 2012, the U.S. Supreme Court, in a 5-4 split decision, ruled that pharmaceutical “detailers” fall within the definition of “outside salesmen” as defined in the DOL regulations and are exempt from the FLSA requirement to pay overtime wages.  In Christopher v. SmithKline Beecham, the high court affirmed the Ninth Circuit’s interpretation of the DOL regulations and rejected the 2010 decision of the Second Circuit Court of Appeals.

For over fifty years, pharmaceutical companies have employed sales staff to call on physicians to “detail” their products. These salesmen encourage the doctors to prescribe the company’s products when appropriate, as prescription drugs can only be dispensed on a physician’s prescription.  It was not until 2009 that the DOL first announced its view that detailers should be considered exempt employees.  In its amicus brief filed in the litigation in the Second Circuit, the DOL took the position that a “sale” within the meaning of the CFR definition of “outside salesmen” contemplated a “consummated sale” by the employee.   The Second Circuit gave deference to the DOL’s interpretation of its own regulations and ruled that pharmaceutical detailers were -exempt.

In Christopher, the Supreme Court accepted review of the Ninth Circuit’s decision that affirmed the district court’s ruling that Smith Kline’s detailers were exempt employees, rejecting the OL’s revised interpretation that a “sale” demands a transfer of title.   The Supreme Court found that the DOL’s interpretation was not entitled to deference because it would result in “unfair surprise” to the pharmaceutical industry that has conducted its business through outside salesmen for over seventy year and has recently employed about 90,000 people in that capacity.   The DOL’s silence over the decades was interpreted by the Court as acquiescence to the practice of treating detailers as exempt employees.

Significant to the Supreme Court was the fact that these salesmen made good salaries and earned substantial bonuses for their work.  The position typically required them to work 40 hours per week calling on doctors and to spend an additional 10-20 hours preparing for visits, learning about new drugs, and responding to email.  The Court declared that such employees were not those that the FLSA was enacted to protect.

While of obvious import to the pharmaceutical industry, the Christopher decision also demonstrates that the DOL’s interpretation of its regulations will be closely scrutinized and not always given deference, particularly when there is no opportunity for public comment.

Tracey Eberling focuses her practice in the area of litigation, with a concentration in the defense of institutions, professionals, insurance companies and governmental entities.
 
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