On the Docket – Supreme Court to Resolve Significant Split Over FLSA Exemption

On November 28, 2011, the U.S. Supreme Court agreed to determine whether pharmaceutical sales representatives are exempt from the overtime requirements under the “outside sales” exemption of the Fair Labor Standards Act (“FLSA”).

Prompting the Supreme Court’s decision is a February 2011 decision by the 9th U.S. Circuit Court of Appeals in Christopher v. SmithKline Beecham Corp, d/b/a GlaxoSmithKline, 635 F.3d 383 (9th Cir. 2011), which held the FLSA’s outside sales exemption did not include pharmaceutical sales representatives for GlaxoSmithKline. In its holding, the 9th Circuit rejected the Department of Labor’s (“DOL’s”) position that the exemption does not cover pharmaceutical sales representatives because their job is to promote their company’s drugs rather than to make final sales.

The 9th Circuit’s decision is directly opposite to the conclusion reached by the 2nd U.S. Circuit Court of Appeals in July 2010 in In re Novartis Wage & Hour Litig., 611 F.3d 141 (2d Cir. 2010). In that decision, the 2nd Circuit held drug sales representatives for Novartis Pharmaceuticals Corp. and Schering Corp. were not FLSA-exempt and could pursue overtime claims. In reaching its decision, the 2nd Circuit deferred to the DOL’s regulation which states that “promotional work” is not encompassed by the term “sales” or “sell” under the FLSA.

What is Outside Sales under the FLSA?

The FLSA exempts from overtime any employee who works “in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the [DOL]).”

The term “sale” or “sell” under the FLSA “includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” The DOL has also defined the term “sales,” as used in the FLSA, to mean “the transfer of title to tangible property, and in certain cases, of intangible” property. However, the DOL has stated “promotional work that is incidental to sales made, or to be made, by someone else is not exempt outside sales work.”

The Supreme Court will now decide who is correct: the DOL and the 2nd Circuit, or the 9th Circuit.

Potential Impact of the Supreme Court’s Decision

The Supreme Court’s decision will have a significant impact on the pharmaceutical industry because, according to the pharmaceutical sales representatives for GlaxoSmithKline, there are approximately 90,000 drug firm sales reps working within the United States who do not receive overtime although they often work 10 to 20 hours above a 40-hour workweek. This decision could also have widespread ramifications to other industries employing sales representatives in similar roles as pharmaceutical sales representatives.

Further, the Supreme Court’s decision to resolve the circuit split is significant because the Court also agreed to decide whether deference is owed to the DOL’s interpretation of the exemption and related regulations.

Leech Tishman’s Employment Practice Group will keep you informed on any news related to the Supreme Court’s review of the reach of the FLSA’s “outside sales” exemption and is able to assist you in determining which of your employees are exempt from the FLSA’s overtime requirements.

Please feel free to contact the Employment Group with any questions regarding the Fair Labor Standards Act or any other employment law issue.

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