On June 18, 2012, the U.S. Supreme Court issued a landmark
decision in Christopher v. SmithKline Beecham, Corp. ,
finding that the pharmaceutical industry does not have to pay
overtime to its sales representatives who visit doctors'
offices to promote their products — a dispute that had
threatened the industry with billions of dollars in potential
liability. This decision confirmed the industry-wide practice of
paying sales representatives a base salary plus commission, and no
In reaching its decision, the Court flatly denied deference to
the Department of Labor's (DOL) Opinion that the sales
representatives were exempt because the representatives did not
"transfer title" when promoting the industry's
products. After ruling that the DOL was not entitled to deference
on this issue, the Court focused on the issue of whether the
pharmaceutical sales representatives were "making sales"
for purposes of the outside sales exemption to the FLSA. The Court
determined that the sales representatives were making sales within
the meaning of the outside-sales exemption because the
representatives obtained commitments from the doctors to prescribe
particular drugs in various circumstances. In determining that the
drug representatives were exempt, even where title to the drugs
never changed hands, the Court considered the highly regulated
nature of the pharmaceutical and health care industry, explaining
that "an employee who functions in all relevant respects as an
outside salesman should not be excluded from that category based on
The Supreme Court decision is certainly a victory for employers,
with the high court taking a broad view of the term
"sale" in a function-based analysis. The decision could
signal a shift in FLSA analysis away from the more rigid,
formalistic approach championed by the DOL. Certainly, the Supreme
Court also was mindful that each of the Plaintiffs made more than
$70,000 per year — far more than the typical non-exempt
worker. The Supreme Court also has clearly sent a message to the
DOL that sudden changes in regulatory interpretations will not be
looked upon with favor.
While this ruling is certainly a blow to the DOL, employers
still should be mindful of the requirements for the outside sales
exemption. In order to qualify: 1) the employee's primary duty
must be making sales; and 2) the employee must be customarily and
regularly engaged away from the employer's place of business
(including work away from any home office). Each employer still
should seriously consider whether its employees are making sales
away from the employer's place of business before deciding
whether the outside sales exemption applies.
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