Date: May 11th, 2011
Categories: Employment Law

The Ninth Circuit Court of Appeals has ruled that Pharmaceutical Sales Representatives (Reps) are within the “outside sales” exemption to the Fair Labor Standards Act (FLSA), and therefore not entitled to overtime pay. This decision marks a striking departure from the recent trend set by other Circuits finding Reps not-exempt, largely at the urging of the U.S. Department of Labor.

In Christopher v. SmithKlineBeecham, — F.3d —-, 2011 WL 489708 (9th Cir. 2/14/11), a group of pharmaceutical sales reps sued GlaxoSmithKline (Glaxo) for overtime under the FLSA. Glaxo contended that the plaintiffs were exempt as outside salesmen provision of the FLSA or alternatively, under the “administrative” exemption. 29 U.S.C. § 213 (a)(1). The trial court granted summary judgment in favor of Glaxo, finding that the Reps were exempt as outside salesmen.

Over the past several years, lawsuits like this one have been filed against some of the world’s largest pharmaceutical companies. The results of those cases have varied dramatically. In two previous posts here and here, I have discussed the varying reasons courts have given for determining outside sales are exempt or non-exempt. Most recently, the Department of Labor stepped into the fray providing to courts how they think the various exemptions should be interpreted.

Relying heavily on DOL’s briefing interpreting the “outside sales” exemption, the 2nd Circuit Court of Appeals (In re Novartis) determined just last July that Reps did not fall into the “outside sales” exemption, and thus, were entitled to overtime compensation. Though US Circuits often disagree with each other, most informed legal minds assumed that other Circuit courts would follow the 2nd Circuit’s lead and be similarly persuaded by DOL’s interpretation of the “outside sales exemption” and because the US Supreme Court denied a request to take the case on appeal.

Instead, the 9th Circuit, in Christopher v. SmithKline Beecham Corp, d/b/a GlaxoSmithKline, repudiated the DOL’s recommendations, finding that (1) their position was a mere paraphrase of the statutory language, and thus not worthy of special deference, (2) that their position was not declared through the proper regulation promulgation process, and (3) that their interpretation of the “outside sales” exemption was simply wrong—inaccurately treating patients as the customers, when the relevant purchasers in the pharmaceutical industry are in fact the physicians whom the Reps regularly solicit.

The 9th Circuit went on to hold that Reps do fall into the “outside sales” exemption. In Christopher, the 9th Circuit considered the Reps exempt for several reasons. The Court found significant that Reps, like outside salespersons in other industries, (1) worked in assigned territories, (2) did not make immediate deliveries, (3) were required to analyze client backgrounds, (4) received product training, (5) employed a pre-planned routine for client interaction, (6) were accompanied by supervisors for training, (7) were later subject to minimal supervisor oversight, (8) completed clerical activities at the end of the day, and (9) had a dual salary and commission-based compensation plan tied to their performance.

With respect to the argument that Reps aren’t outside salesmen because they don’t actually “sell” anything, the court took a common sense approach: “Even though [Reps] lacked some hallmarks of the classic salesman,” the Court said, “the great bulk of their activities are the same, as is the overarching purpose of obtaining a commitment to purchase (prescribe) something.”

What does this mean for West Coast[1. The 9th Circuit covers the states of Alaska, Arizon, California, Hawaii, Idaho, Montana, Nevada, Oregon and Washington.] businesses with outside sales reps? The 9th Circuit’s decision is helpful because it provides some comfort to businesses with outside sales employees that they won’t be liable for unpaid overtime compensation. Caution is required, however. In light of the sharp divide that now exists between the Federal Circuit courts, the US Supreme Court will likely take up Christopher for review. Given that the Supreme Court did not review Novartis, some experts believe that the US Supreme Court might overturn Christopher if given the chance. If that happens, then the 9th Circuit’s opinion disappears and Reps are likely eligible for overtime compensation. The second thing to keep in mind is that these cases continue to be highly fact specific. No two cases are exactly alike just as no two outside sales programs are the same.