SCOTUS to Consider Pharmaceutical Rep Overtime Exemption - U.S. Supreme Court
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SCOTUS to Consider Pharmaceutical Rep Overtime Exemption

The Supreme Court will kick off its April sitting on April 16, considering a circuit split in Christopher v. SmithKline Beecham Corp.

The case addresses whether a pharmaceutical sales representative (PSR) is an “outside salesperson,” and thus exempt from the Fair Labor Standards Act’s overtime pay requirements. The Ninth Circuit Court of Appeals previously ruled that PSRs are exempt from overtime pay. In its In re Novartis Wage & Hour Litigation decision, the Second Circuit ruled that PSRs should get overtime wages.

The Supreme Court's decision will affect approximately 90,000 PSRs in the U.S. It will also reveal how much deference the Nine are willing to give to the Department of Labor's interpretation of the FLSA.

The FLSA and Department of Labor regulations generally require that employers pay 1.5 times an employee's regular hourly rate for each hour worked in excess of 40 hours per week, unless the employee qualifies for an exemption from the overtime rules. Outside salespersons -- employees whose primary job duty is to sell products away from their employers' offices -- are exempt from the FLSA overtime pay requirement.

The Department of Labor requires the following criteria to be met to prove an outside salesperson exemption:

  • The employee's primary duty must be making sales (as defined in the FLSA), or obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
  • The employee must be customarily and regularly engaged away from the employer's place or places of business.

The case turns on the interpretation of "making sales." PSRs don't sell prescription drugs to doctors; instead, they secure non-binding commitments to prescribe the product as medically appropriate. Even though it's not enforceable, pharmaceutical manufacturers value physicians' commitments enough to reward a PSR with increased commissions when a physician increases his or her use or prescription of the promoted drug.

Labor regulations distinguish sales work from promotional work. The most important difference is that promotional representatives are entitled to overtime pay. Though the Labor Secretary filed an amicus brief in this case expressing her view that PSRs are not outside salespeople, the Ninth Circuit reasoned that it owed no deference to the Secretary's interpretation. Moreover, the appellate court disagreed with her.

The Ninth Circuit thought the circumstances surrounding a PSR's employment were sufficient to merit an overtime exemption as an outside salesperson, and reasoned that applying hourly standards devised for an employee on a fixed hourly wage would be incompatible with the nature of the job. Do you think the Supreme Court will agree?

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