U.S. Supreme Court To Consider Scope of Outside Sales Exemption Under FLSA

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Mark P. Harbison

November 28, 2011

The U.S. Supreme Court this morning agreed to consider whether pharmaceutical sales representatives are covered by federal overtime pay requirements. Two former GlaxoSmithKline sales representatives filed the appeal seeking overtime pay and a determination that they do not qualify as “outside sales employees” under the Fair Labor Standards Act – a classification that would otherwise exempt them from receiving overtime pay.

Previously, both the U.S. Secretary of Labor and the Second Circuit Court of Appeals found the FLSA exemption inapplicable to pharmaceutical sales representatives, agreeing that they are entitled to overtime compensation. Earlier this year, the Ninth Circuit Court of Appeals ruled otherwise, finding the Labor Department’s arguments inconsistent with labor regulations and holding that the GSK representatives were not entitled to extra pay because they fell under the outside-sales employee exemption. The Supreme Court’s decision to grant certiorari appears to be an effort to resolve this Circuit split. The Court will likely decide what level of deference is owed to the Secretary of Labor’s interpretation and whether sales representatives qualify under the outside sales exemption.

Arguing for overtime under the FLSA, the former GSK representatives contend that pharmaceutical industry sales representatives do not actually sell products during their visits to physicians’ offices, they merely promote them, and that the actual “sales occur when hospitals, pharmacies, and wholesalers purchase the products from the pharmaceutical company” following these visits. GSK contends that its representatives are trained in sales techniques, secure commitments from physicians to purchase drugs within the heavily regulated industry, and receive incentive compensation tied to sales volume and market share.

A determination in favor of the nearly 90,000 sales representatives employed in the U.S. pharmaceutical industry could leave drug companies liable for billions of dollars in unexpected overtime pay obligations. Moreover, any determination by the Court regarding the outside sales exemption may affect multiple industries other than pharmaceuticals.

The case is Christopher v. SmithKline Beecham, No. 11-204. The Court will likely hear oral arguments in the spring, with a decision expected by the end of June. Please contact Mark Harbison with any questions.