The U.S. Supreme Court ruled yesterday that pharmaceutical sales representatives are not entitled to overtime pay. According to the 6-3 decision in Christopher v. Smithkline Beecham Corp., the representatives fall within the Fair Labor Standards Act’s exemption for “outside sales” employees, even though the representatives obtain, at most, a non-binding commitment from a physician to prescribe drugs that are later purchased at a pharmacy. The Court looked to function over form in determining that the representatives performed sales functions and obtained the highest possible commitment possible, given the requirement that drugs be purchased at pharmacies by the patient.
Although this decision applies only to pharmaceutical sales representatives, there are a few highlights of the decision with relevance to other industries. The Court rejected the U.S. Department of Labor’s (DOL) interpretations of its own regulations for a number of reasons: the interpretations conflicted with one another, they were announced for the first time in amicus curiae briefs, and they would transform ambiguous regulations into a trap for employers. This decision puts the onus on the DOL to clearly and consistently define its interpretation of its regulations in order to avoid unfairly surprising an entire industry.
In another highlight, the Court acknowledged that the DOL had not acted on the pharmaceutical industry’s decades-long practice of treating sales representatives as exempt under the outside sales exemption. While “everyone else is doing it” and “you never cared before” do not work on your mother or the DOL, the Court considered the fact that the DOL had acquiesced for over 60 years as evidence that the DOL did not believe the industry practice to be unlawful. The Court feared agencies would issue ambiguous regulations and then interpret them however they see fit at some future time.
The DOL and other administrative agencies should take note of this decision and provide clearer and more consistent guidance but whether this actually happens is another issue. While courts do not always defer to agency interpretations, employers should follow agency interpretations, lest they become the subject of an enforcement action. With enforcement actions, as with litigation, even winning can be a very costly proposition. Consulting an attorney competent in wage and hour issues is the best way to take the proverbial ounce of prevention.
Brody and Associates regularly advises management on complying with state and federal employment laws including wage and hour laws. If we can be of assistance in this area, please contact us at info@brodyandassociates.com or 203.965.0560.
