SUPREME COURT DECISION REGARDING SALES REPS

The Supreme Court of the United States recently decided in Christopher v. Smithkline Beecham Corp. that pharmaceutical sales representatives are not entitled to overtime wages under the Fair Labor Standards Act (“FLSA”) because they satisfy the ‘outside salesmen’ exemption. The Court based their decision on the nature of the pharmaceutical sales reps’ position and the rules and industry wide practices set forth in the pharmaceutical sales industry. A pharmaceutical sales rep’s objective is to enter into as many nonbinding commitment agreements with physicians as they can in order to promote their companies prescription drug and gain incentive pay. Pharmaceutical sales reps, also known as Detailers, typically worked 40 hours a week during business hours and an additional 10-20 hours a week attending events, returning calls and emails, and performing other tasks. The Court found that these nonbinding commitments qualified as “sales” at least “in some sense,” which is all that’s required under the FLSA. The Court specifically noted the long, unrecorded hours, the lack of supervision, the difficulty in standardizing the work within a specific time frame and distributing it among several workers, and the Detailers’ earnings (which were substantially greater than the minimum wage) to further establish their conclusion. The Court denied the Department of Labor (DOL) and the Petitioners’ attempts to fully define a “sale” under the FLSA, finding that they were too narrow, and instead determined that a broader definition applied. The Court used the specific language in the text to determine that Congress intended that the transaction need not technically be a sale, that the examples listed were only an illustrative list, rather than an exhaustive one, and that each industry’s definition of an ‘outside salesmen’ must be judged separately based on their own respective sales methods. Finally, the Court explained that the long-standing practice of the DOL recognized and allowed Detailers to fall within the ‘outside salesmen’ exemption. Therefore, if Detailers were not exempt from overtime wages, it would create a sudden change in the industry standard that would undermine the fair warning principle, which requires fair warning be given in regards to the conduct a regulation prohibits or requires in order to avoid unfairly surprising one party.