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On June 18, 2012, the United States Supreme Court held in
Christopher v. Smithkline Beecham Corp., that
pharmaceutical company sales representatives — often
called "detailers" because they provide physicians with
detailed information about pharmaceutical products
— are exempt from the overtime compensation
requirements of the Fair Labor Standards Act ("FLSA")
under the "outside sales" exemption. At issue was
whether the exemption applied to detailers who, unlike traditional
salespersons, do not actually take binding orders or transfer
ownership of products to their customers. By concluding that
detailers are nonetheless "outside sales" employees, the
Supreme Court resolved an open question that affects nearly 90,000
employees working in similar roles within the pharmaceutical
industry.
The case began when a class of former detailers sued Smithkline,
claiming that they were owed compensation for overtime hours.
Because of the regulatory environment applicable to pharmaceutical
companies, detailers cannot sell products to physicians or
patients. Rather, in order to protect physicians'
independence to prescribe medications, detailers can only promote
products and obtain non-binding commitments from physicians to
prescribe products in appropriate circumstances. Thus the
detailers argued that they were not exempt "outside
sales" employees because they did not actually sell
anything. Both the federal District Court for the District of
Arizona and the Ninth Circuit Court of Appeals disagreed, holding
that the detailers' argument elevated form over substance and
that they were still "selling" within the meaning of the
"outside sales" exemption. Shortly before the Ninth
Circuit's decision, however, the Second Circuit Court of
Appeals reached the opposite conclusion in a similar but separate
case.
In order to resolve the split between the Ninth Circuit and the
Second Circuit, the Supreme Court agreed to hear the case. It
sided with the Ninth Circuit, concluding that detailers are exempt
"outside sales" employees because Congress had intended
the exemption to apply not just to those in traditional mode of
selling, but to employees engaging on other similar
"dispositions of products" as well. In its decision, the
majority also took issue with the position asserted by the U.S.
Department of Labor. The DOL, several years after the
litigation had started, had intervened in the Second and Ninth
Circuit cases and sided with the detailers, asserting that
regulations governing the "outside sales" exemption
applied narrowly only to persons who actually took orders or
transferred title to products. The Court refused to defer to
the DOL's interpretation, however, because it arose in the
course of the litigation. The Court explained that under
these circumstances, deferring to the DOL's interpretation
would amount to imposing an unfair burden on an entire industry
which had neither reasonable notice nor the opportunity to
challenge the Department's interpretation.
While the decision obviously affects the pharmaceutical industry,
it has implications for sales employees in other industries as
well. By rejecting a narrow interpretation of the exemption,
the Smithkline decision suggests that sales employees may
fall under the "outside sales" exemption, even if they do
not actually obtain orders or binding commitments from
customers.
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