U.S. SC sides with Ninth Circuit, rules against OT pay for salespeople

Michael P. Tremoglie Jun. 18, 2012, 1:14pm


WASHINGTON (Legal Newsline) - The U.S. Supreme Court ruled Monday 5-4 against pharmaceutical industry sales staff seeking to be paid overtime wages.

The court ruled such employees do not qualify to be paid overtime according to the Department of Labor's interpretation of "outside sales" in the Fair Labor Standards Act.

In Christopher et al v. Smithkline Beecham Corp., d/b/a GlaxoSmithkline, the plaintiffs were employed by Glaxo as pharmaceutical sales representatives for four years. During that time, their objective was to call on physicians and obtain a nonbinding commitment to prescribe the company's products in appropriate cases.

The plaintiffs worked about 40 hours making sales calls or "detailing" physicians. They spent an additional 10 to 20 hours attending events and performing other miscellaneous tasks. They were at no time required to validate their hours and received minimal supervision.

According to the Supreme Court, the plaintiffs were well compensated for their efforts. Their gross pay included both a base salary and incentive pay. The incentive pay was based on the performance of petitioners' assigned portfolio of drugs in their assigned sales territories.

The plaintiffs claimed they were owed overtime for their work and filed suit in Arizona federal court. Glaxo said they were not entitled because they were "outside sales."

The plaintiffs said the District Court erred because of a recent Department of Labor ruling that they said defines a sale as a completed transaction. Someone can only be considered a salesperson if the duties involve completed transactions not the sort of "detailing" work done in the pharmaceutical industry, they said. But the District Court rejected that argument.

The U.S. Court of Appeals for the Ninth Circuit affirmed the District Court, saying that the DOL's interpretation was not entitled to controlling deference. It held that "because the commitment that petitioners obtained from physicians was the maximum possible under the rules applicable to the pharmaceutical industry, petitioners made sales within the meaning of the regulations."

The court found it significant, moreover, that the DOL had previously interpreted the regulations as requiring only that an employee "in some sense" make a sale, and had "acquiesce(d) in the sales practices of the drug industry for over 70 years."

The Ninth Circuit differed from the Second Circuit in New York in this interpretation. The Supreme Court sided with the Ninth Circuit.

Justice Samuel Alito, writing for the majority said, "The DOL's current interpretation - that a sale demands a transfer of title - is quite unpersuasive. It plainly lacks the hallmarks of thorough consideration. Because the DOL first announced its view that pharmaceutical sales representatives are not outside salesmen in a series of amicus briefs, there was no opportunity for public comment, and the interpretation that initially emerged from the DOL's internal decision-making process proved to be untenable. The interpretation is also flatly inconsistent with the FLSA."

Alito said the plaintiffs "made sales for purposes of the FLSA and therefore are exempt outside salesmen within the meaning of the DOL's regulations. 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."

He observed that the plaintiffs "were hired for their sales experience. They were trained to close each sales call by obtaining the maximum commitment possible from the physician. They worked away from the office, with minimal supervision, and they were rewarded for their efforts with incentive compensation."

The U.S. Chamber of Commerce had filed an amicus brief in support of Smithkline Beecham last October. The U.S. Chamber Institute for Legal Reform owns Legal Newsline.

More News