As an attorney, unfortunately, you are always spotting legal
issues in day to day life. The other day, as I sat waiting at the
nurse station in my doctor's office, an all-too familiar
scenario unfolded: A young, attractive, well-dressed woman with a
rolling briefcase, blue tooth in her ear, and black locked bag
walked in the door. The box of donuts, bag of candy, and
carrying-case with several hot coffees gave her away. The
pharmaceutical sales representative dropped off the goodies at the
reception desk, re-stocked one of the cabinet drawers with samples
of prescription goodies, asked a few questions of the nurses, and
then left, indicating she would be back in next week. Instead of
wondering where she got her cute shoes that matched her purse like
a normal person, I wondered if she was aware of the Supreme
Court's recent decision against pharmaceutical sales
representatives holding that they were not entitled to overtime pay
under the Fair Labor Standards Act (FLSA).
Pharmaceutical companies directly promote their products to
physicians through pharmaceutical sales representatives (PSRs) or
"detailers" who try to get physicians to make non-binding
promises to prescribe their companies' drugs as appropriate.
PSRs are usually highly-compensated; earning both a salary and
incentive pay based on the performance of their drug portfolios.
For years, PSRs had been classified as exempt outside salespeople
not entitled to overtime pay under the FLSA. While that exempt
classification had been challenged in courts, the long-standing
practice remained in tact. Then, in 2009, the Department of Labor
(DOL) filed amicus briefs in the Second and Ninth Circuit Courts of
Appeal, indicating the agency's position that PSRs were
non-exempt employees entitled to overtime pay. According to the
DOL, PSRs did not qualify for the outside sales exemption because
they were not actually selling (i.e. transferring title to tangible
property) as defined in the agency's regulations.
Interestingly, however, the DOL never initiated any enforcement
actions against the employers of PSRs. Conflicting court opinions
ensued and the United States Supreme Court finally decided the
issue in Christopher et al. v. SmithKline Beecham Corp., d/b/a
GlaxoSmithKline issued on June 18, 2012.
The Supreme Court ruled, 5 to 4, in favor of employers and against
the PSR plaintiffs. Under the most reasonable interpretation of the
DOL's regulations (which were last updated in 2004), selling
did not just mean selling or transferring title, it could also
include consignments that did not involve a transfer of title. The
DOL's position that PSRs were only engaging in promotional work
that was incidental to sales made, or to be made, by others, was
unconvincing. According to the Court, the FLSA focuses on the
"capacity" in which the employee is employed and should
be interpreted in favor of a functional, rather than a formal,
inquiry based on the employee's responsibilities in the context
of the industry in which she works. Since by law and industry
practice, PSRs cannot sell drugs directly and must rely on
non-binding commitments by doctors to prescribe their
companies' drugs, PSRs are making sales in the broadest sense
of the term. [As an aside, Justice Alito also observed that the
PSRs involved in the case earned, on average, more than $70,000 per
year and were "hardly the kind of employees that the FLSA was
intended to protect." Perhaps suggesting that the FLSA only
protects the exploited and poor, and not the exhausted and rich?]
In any event, the Court provided some valuable insight for those of
you who have exempt employees, including outside sales employees:
Are your employees selling or promoting your services or products?
If you are not sure, perhaps you should take a look around to see
how others in your industry classify their employees and why they
do so. It is worth a second look, which could save your company
money and the pitfalls of litigation. As for me, as I was leaving
my doctor's office, I saw another well-dressed gentleman, this
time with a box of bagels, headed into the building. For a fleeting
moment, boy, did I wish I was a doctor ... or maybe, I was just
hungry.
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