Supreme Court’s Rx for Pharmaceutical Industry

by Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
Contact

For the past decade, employers have been frustrated by what they describe as a moving target when it comes to properly classifying employees as either exempt (and thus not eligible for overtime) or non-exempt (and thus overtime eligible) under the Fair Labor Standards Act (FLSA). For many, the U.S. Department of Labor (DOL) has not provided clear or consistent guidance as to what is expected of employers, leaving a puddle of uncertainty that has cost both workers and the business community greatly. Nearly identical jobs have been found to be exempt by one court and non-exempt by another, with both courts relying on what the DOL said its regulations meant. Opinion letters have been retracted and prior agency positions have been reversed, all in a relatively narrow period of time considering that the FLSA is over 70 years old. With mushrooming liability and bottom-line impacting FLSA collective actions, this uncertainty (surprise even) thwarts good faith business planning.

Against this backdrop, the U.S. Supreme Court’s June 18, 2012, decision in Christopher v. SmithKline Beecham Corp. is important to employers for two main reasons. (To see our National eAuthority on the ruling, click here.)

First, for employers in the pharmaceutical industry, it dissolves the swirling fog over whether pharmaceutical sales representatives satisfy a particular exemption from mandatory overtime pay under the FLSA. Rather pointedly, the Supreme Court held that pharmaceutical sales representatives “make sales” within the meaning of the FLSA exemption for outside salespersons. The duties of a “detailer” as traditionally performed in the pharmaceutical industry—persuading physicians to write prescriptions for drug products—satisfy the FLSA overtime exclusion for “outsides salesmen.” No question, the industry or context in which the duties are performed mattered to the Supreme Court. Key to the exemption was the requirement that outside salesmen actually make sales as a principal duty. Congress defined “sale” in the FLSA to include “or other disposition.” According to the Supreme Court, obtaining nonbinding commitments from physicians to prescribe pharmaceutical products was a sale, thus removing the industry from the cross-hairs of a five-plus year squabble that cost millions of dollars. And, even more directly, the Supreme Court reminded us that the point of the FLSA was to protect oppressed workers. Pharmaceutical sales representatives, who typically perform unique, non-standardized duties for which they are paid substantial compensation, “are hardly the kind of employees that the FLSA was intended to protect.”

As with any FLSA exemption, of course, the particularized facts control. Sales representatives will have to satisfy all of the tests for the outside sales exemption, including regularly working away from or “outside” the employer’s place of business—a factor that was not at issue in the SmithKline Beecham case.

Second, the SmithKline Beecham decision tells us that that flip-flopping interpretations by an agency of its own rules will eventually lead to their demise. Normally, when a federal agency says, “this is what our regulations really mean” the courts listen; and they defer. But once the agency’s pronouncement of what its regulations mean resemble a roller coaster in full circle, they are no longer persuasive. Lacking persuasion, traditional deference is withdrawn, as Justice Samuel Alito commented in the decision: “Our practice of deferring to an agency’s interpretation of its own ambiguous regulations undoubtedly has important advantages, but this practice also creates a risk that agencies will promulgate vague and open-ended regulations that they can later interpret as they see fit, thereby ‘frustrating the notice and predictability purposes of rulemaking’.”

In SmithKline Beecham, the Court rejected the DOL’s interpretation of what “making sales” for purposes of the outside salesman exemption meant because it was “flatly inconsistent” with the FLSA and “plainly lacks the hallmark of thorough consideration.” Embedded in a 2009 amicus brief rather than through prior notice and comment, the DOL’s latest interpretation was nothing short of “unfair surprise” to employers. Massive liability within an industry cannot be triggered by surprise: “Until 2009, the pharmaceutical industry had little reason to suspect that its longstanding practice of treating detailers as exempt outside salesmen transgressed the FLSA.” For decades, the practice of obtaining nonbinding commitments from physicians was the bedrock of pharmaceutical sales duties. Nothing in the FLSA or its regulations clearly warned employers that this industry practice (currently impacting approximately 90,000 pharmaceutical sales representatives) violated the FLSA, and the DOL had been conspicuously silent on the point for years. To turn the industry on its head based on an implausible reading of the term “making sales” would not further the purpose of the FLSA or the safeguards for fair rulemaking.

In an earlier article, we wrote about The Three C’s of FLSA Compliance. The first “c” was classification—making sure employees were properly classified as exempt or nonexempt for FLSA overtime eligibility. The SmithKline Beecham decision on June 18, 2012 addressed one such classification issue, outside salesmen, and provided us with a filter for viewing other similar classification cases.

Margaret C. Alli is a shareholder in the Detroit Metro office of Ogletree Deakins.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

© Ogletree, Deakins, Nash, Smoak & Stewart, P.C. | Attorney Advertising

Written by:

Ogletree, Deakins, Nash, Smoak & Stewart, P.C.
Contact
more
less

Ogletree, Deakins, Nash, Smoak & Stewart, P.C. on:

Readers' Choice 2017
Reporters on Deadline

"My best business intelligence, in one easy email…"

Your first step to building a free, personalized, morning email brief covering pertinent authors and topics on JD Supra:
Sign up using*

Already signed up? Log in here

*By using the service, you signify your acceptance of JD Supra's Privacy Policy.
Privacy Policy (Updated: October 8, 2015):
hide

JD Supra provides users with access to its legal industry publishing services (the "Service") through its website (the "Website") as well as through other sources. Our policies with regard to data collection and use of personal information of users of the Service, regardless of the manner in which users access the Service, and visitors to the Website are set forth in this statement ("Policy"). By using the Service, you signify your acceptance of this Policy.

Information Collection and Use by JD Supra

JD Supra collects users' names, companies, titles, e-mail address and industry. JD Supra also tracks the pages that users visit, logs IP addresses and aggregates non-personally identifiable user data and browser type. This data is gathered using cookies and other technologies.

The information and data collected is used to authenticate users and to send notifications relating to the Service, including email alerts to which users have subscribed; to manage the Service and Website, to improve the Service and to customize the user's experience. This information is also provided to the authors of the content to give them insight into their readership and help them to improve their content, so that it is most useful for our users.

JD Supra does not sell, rent or otherwise provide your details to third parties, other than to the authors of the content on JD Supra.

If you prefer not to enable cookies, you may change your browser settings to disable cookies; however, please note that rejecting cookies while visiting the Website may result in certain parts of the Website not operating correctly or as efficiently as if cookies were allowed.

Email Choice/Opt-out

Users who opt in to receive emails may choose to no longer receive e-mail updates and newsletters by selecting the "opt-out of future email" option in the email they receive from JD Supra or in their JD Supra account management screen.

Security

JD Supra takes reasonable precautions to insure that user information is kept private. We restrict access to user information to those individuals who reasonably need access to perform their job functions, such as our third party email service, customer service personnel and technical staff. However, please note that no method of transmitting or storing data is completely secure and we cannot guarantee the security of user information. Unauthorized entry or use, hardware or software failure, and other factors may compromise the security of user information at any time.

If you have reason to believe that your interaction with us is no longer secure, you must immediately notify us of the problem by contacting us at info@jdsupra.com. In the unlikely event that we believe that the security of your user information in our possession or control may have been compromised, we may seek to notify you of that development and, if so, will endeavor to do so as promptly as practicable under the circumstances.

Sharing and Disclosure of Information JD Supra Collects

Except as otherwise described in this privacy statement, JD Supra will not disclose personal information to any third party unless we believe that disclosure is necessary to: (1) comply with applicable laws; (2) respond to governmental inquiries or requests; (3) comply with valid legal process; (4) protect the rights, privacy, safety or property of JD Supra, users of the Service, Website visitors or the public; (5) permit us to pursue available remedies or limit the damages that we may sustain; and (6) enforce our Terms & Conditions of Use.

In the event there is a change in the corporate structure of JD Supra such as, but not limited to, merger, consolidation, sale, liquidation or transfer of substantial assets, JD Supra may, in its sole discretion, transfer, sell or assign information collected on and through the Service to one or more affiliated or unaffiliated third parties.

Links to Other Websites

This Website and the Service may contain links to other websites. The operator of such other websites may collect information about you, including through cookies or other technologies. If you are using the Service through the Website and link to another site, you will leave the Website and this Policy will not apply to your use of and activity on those other sites. We encourage you to read the legal notices posted on those sites, including their privacy policies. We shall have no responsibility or liability for your visitation to, and the data collection and use practices of, such other sites. This Policy applies solely to the information collected in connection with your use of this Website and does not apply to any practices conducted offline or in connection with any other websites.

Changes in Our Privacy Policy

We reserve the right to change this Policy at any time. Please refer to the date at the top of this page to determine when this Policy was last revised. Any changes to our privacy policy will become effective upon posting of the revised policy on the Website. By continuing to use the Service or Website following such changes, you will be deemed to have agreed to such changes. If you do not agree with the terms of this Policy, as it may be amended from time to time, in whole or part, please do not continue using the Service or the Website.

Contacting JD Supra

If you have any questions about this privacy statement, the practices of this site, your dealings with this Web site, or if you would like to change any of the information you have provided to us, please contact us at: info@jdsupra.com.

- hide
*With LinkedIn, you don't need to create a separate login to manage your free JD Supra account, and we can make suggestions based on your needs and interests. We will not post anything on LinkedIn in your name. Or, sign up using your email address.