On June 18, the Supreme Court decided Christopher v. Smithkline Beecham Corp. King & Spalding LLP submitted amicus briefs on behalf of PhRMA, the association representing the nation’s leading pharmaceutical and biotechnology companies, in support of SmithKline Beecham Corp. (GSK) both at the certiorari stage (brief available here) and on the merits (brief available here). By a vote of 5–4, the Court held in favor of GSK that pharmaceutical sales representatives are not entitled to overtime pay under the Fair Labor Standards Act because they come within the Act’s exemption for “outside salesmen.” In reaching that conclusion, the Court refused to defer to a contrary interpretation advanced by the Department of Labor. The Court’s decision eliminates a major source of potential liability for pharmaceutical companies.
The decision is also likely to have broader implications for the deference that courts will afford to regulatory interpretations offered by DOL and other federal agencies. Christopher has raised the bar for agencies to obtain “controlling deference” to their regulatory interpretations under Auer v. Robbins, 519 U.S. 452 (1997). The Court made clear that such deference is not warranted when the agency’s interpretation would result in “unfair surprise” by imposing retroactive liability or upsetting reasonable expectations, including expectations built upon the agency’s seeming acquiescence in the conduct at issue. The Court also expressed concern about allowing agencies to regulate via amicus briefs filed in pending litigation, suggesting that this practice may deprive regulated entities of fair notice and frustrate the public-participation purposes of rulemaking. Although the Court did not overrule Auer, it did lay down important markers that may limit the circumstances in which courts will afford deference to agency interpretations under both Auer and Chevron.
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