Drug Reps Are Outside Salesmen: Supreme Court Rejects Department of Labor’s Interpretation

The U.S. Supreme Court ruled today the pharmaceutical sales reps or detailers are exempt as outside salesmen under the Fair Labor Standards Act (FLSA).  In affirming the ninth Circuit’s decision, the Court rejected the arguments forwarded by the plaintiffs and the U.S. Department of Labor (DOL) that the 90,000 or so employees employed in these positions in the pharmaceutical industry, and whose median pay exceeded $90,000 per year, are entitled to overtime pay when working more than forty (40) hours in a week. 

The decision is a huge victory for the pharmaceutical industry.   The industry as a whole has followed this particular business model since the 1950s.  The drug reps call on doctors to educate them about their company’s products and to get the doctors to make a non-binding commitment to prescribe the drugs, when appropriate, to their patients.  The drug reps are prohibited from actually selling drugs, so getting a physician’s commitment to prescribe the drug is all that the rep can obtain. 

The DOL took the position that because the reps never actually sold a product where title to the property transferred to the doctor, no “sale” took place.  The Supreme Court rejected this position.   It found that the DOL had unfairly asserted this position for the first time in 2009 by joining litigation by private parties and asserting the position in “friend of the court” briefs supporting the drug reps who were suing for overtime.  The Court did not like it that the DOL never conducted public hearings on whether to take such a position after having acquiesced in the industry’s treatment of these individuals as exempt for over a half a century.

The majority in the 5-4 decision refused to give deference to the DOL’s litigation-inspired interpretation of its regulations.   The Court examined the statute and the existing regulations and held that the DOL’s interpretation was wrong.  Under the statute and existing regulations, the drug reps made sales as that term was understood in the industry.

How this decision will impact employers outside the pharmaceutical industry will take years to assess on a case-by-case basis.   Footnote 23 of the majority’s decision perhaps limits its application.   In that footnote, the Court stated, “…Rather, our point is that when an entire industry is constrained by law or regulation from selling its products in the ordinary manner, an employee who functions in all relevant respects as an outside salesman should not be excluded  from that category based on technicalities.”   If the industry model is not legally constrained from making a sale in “the ordinary manner,” the result might be different.