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Supreme Court to consider exempt status of pharmaceutical reps

November 28th, 2011  |  Lisa Milam-Perez

Agreeing to consider a contentious wage-hour issue that has divided the circuits, the U.S. Supreme Court on Monday, November 28, granted a petition for writ of certiorari in Christopher v SmithKline Beecham Corp (Dkt No 11-204), a case focusing on the exempt status of pharmaceutical sales reps under the FLSA. The High Court will decide “whether the Fair Labor Standards Act’s outside sales exemption applies to pharmaceutical sales representatives,” an issue that it had declined to consider in February 2011, when it denied cert in Novartis Pharmaceuticals Corp v Lopes (Dkt No 10-460) and let stand a Second Circuit ruling that Novartis sales reps were not covered by either the administrative or outside sales exemption.

The Supreme Court will also consider “[w]hether deference is owed to the Secretary’s interpretation of the Fair Labor Standards Act’s outside sales exemption and related regulations.”

In the opinion below, the Ninth Circuit ruled pharmaceutical sales reps (PSRs) were exempt from FLSA overtime pay requirements under the outside salesperson exemption, in direct contrast to the Second Circuit’s 2010 holding in In Re Novartis. The Ninth Circuit refused to give deference to a DOL amicus brief submitted in Novartis, in which the agency took the position that the outside salesperson exemption did not apply to PSRs. An agency is not entitled to deference where it simply parrots statutory language, the Ninth Circuit stated, and in its effort to define “sales” in its regulations clarifying outside salesperson, the DOL just that, the appeals court reasoned. Moreover, prior to Novartis, the Secretary of Labor had, for the past 70 years, acquiesced to the practice that “detailing” (a term used for the work of PSRs) was considered sales, the Ninth Circuit observed.

“PSRs are driven by their own ambition and rewarded with commissions when their efforts generate new sales. They receive their commissions in lieu of overtime and enjoy a largely autonomous work-life outside of an office,” the appeals court concluded. “Even though PSRs lack some hallmarks of the classic salesmen, the great bulk of their activities are the same, as is the overarching purpose of obtaining a commitment to purchase (prescribe) something.”

In Novartis, the Second Circuit had found that the pharmaceutical reps were not exempt because they did not actually sell the company’s products to physicians and, thus, their duties did not include “the exchange of goods or services, contracting to sell any good or service, consigning for sale of any good or service, or obtaining orders or contracts for the use of facilities.” In its unsuccessful petition for cert, Novartis had urged the Supreme Court to take its case lest the Second Circuit’s standard would become the national “default” rule, “undermining the Congressionally created balance between exempt and nonexempt employees” and “disrupting a major American industry” in the process.

The U.S. Chamber of Commerce and Pharmaceutical Research and Manufacturers of America have filed amicus briefs in support of the respondent, SmithKline Beecham.