On June 18, 2012, the Supreme Court issued its decision in the Christopher v. SmithKline Beecham Corp. case.  The Pharmaceutical Sales Representatives (PSRs) working for the drug companies argued that they were improperly classified as exempt under the Federal Labor Standards Act's (FLSA) "outside salesman" exemption and were unlawfully denied overtime pay.  The Supreme Court found that PSRs fall under this exemption, and are, therefore, exempt from the minimum wage and overtime provisions of the FLSA.  Pharmaceutical companies had been classifying PSRs as exempt, but the classification had recently been challenged in different courts.  The U.S. Department of Labor (DOL) had sided with the employees arguing in its amicus curiae brief that PSRs do not satisfy the criteria for exempt "outside salesman" under FLSA regulations.

The outside sales exemption

To qualify for the FLSA's outside sales exemption, an employee's primary duty must be making sales.  Sales have been defined as any sale, exchange, contract to sell, consignment for sales, shipment for sale, or other disposition, or obtaining orders or contracts for services 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 of business. 

The Employees' Position

The PSRs argued that their jobs did not involve sales, but rather their main job specification was to "provide medical professionals who prescribe pharmaceuticals with the 'details' of pharmaceutical products, seeking to educate the prescribers with the ultimate goal of influencing their prescribing decisions." The PSRs used the DOL definition of an "outside salesman" as an "employee with the 'primary duty' of 'making sales'" as well as the DOL's distinction between employees who sell something themselves versus those who "promote" products to stimulate sales made by someone else. The PSRs claimed they fit cleanly into the category of those who undertake "promotional work that is incidental to sales made, or to be made, by someone else" and, as such, were not primarily engaged in sales.

The Supreme Court Decision

The Court explained that given the unique regulatory environment within which pharmaceutical companies must operate, the nonbinding commitment from a physician to prescribe one of SmithKline's drugs easily falls within the catch-all category of "other disposition."  The Court also pointed out that PSRs demonstrate the external indicia of salesmen because they were hired for their sales experience, received sales training, worked away from the office with minimal supervision, and were rewarded with incentive-based compensation. Finally, the Court stated that its holding conforms to the apparent purpose of the FLSA's exemption for outside salesmen because the pharmaceutical sales representatives earned pay well above minimum wage (an average in excess of $70,000 per year in compensation) and performed work that is difficult to standardize to any time frame and cannot be easily spread to other workers after forty hours in a week.  The Court also noted that pharmaceutical companies had been classifying PSRs as exempt employees for decades, and it was not until recently that the DOL announced its new position.  By letting the practice go for so long, the Court found that the DOL had accepted the classification.

Implications of Decision

This decision provides for a more flexible interpretation of the meaning of sales under the FLSA.  It is also important because the Supreme Court did not defer to the DOL's interpretation of the regulation.  The Court found that the DOL had not gone through the required notice and comment procedure that a federal agency uses to issue guidance in interpreting statutes and regulations.