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U.S. Supreme Court Grants Review of the "Outside Sales" Exemption Found Applicable to Pharmaceutical Sales Representatives

By:      David Garland and Douglas Weiner

In February 2011, the U.S. Court of Appeals for the Ninth Circuit gave a resounding victory to employers in the pharmaceutical industry by finding that pharmaceutical sales representatives are covered by the outside sales exemption of the Fair Labor Standards Act (“FLSA”). Christopher v. SmithKline Beecham, No. 10-15257 (9th Cir. Feb. 14, 2011). Plaintiffs, and the U.S. Department of Labor (“DOL”) in an amicus brief, had argued the exemption did not apply because sales reps are prohibited from making the final sale. Prescription medicine in the heavily regulated pharmaceutical industry can only be sold to the ultimate consumer with the authorization of a licensed physician. Sales reps use their “selling skills” to persuade doctors to prescribe their employer’s products when the doctor’s patients have a medical need for them. Sales reps do not transfer title to the medicine themselves.

Previously the Second Circuit, in In Re Novartis, took a contrary view and adopted the Secretary of Labor’s position that the outside sales exemption did not apply to pharmaceutical sales representatives specifically because they were prohibited by regulation from making direct sales. The Ninth Circuit rejected the plaintiffs’ and DOL’s “rigid, formalistic interpretation” of the FLSA’s definition of “sale,” which provides that “Sale” … includes any “sale … or other disposition.” 29 U.S.C. 203(k). Because of the uncertainty in this unsettled area of law, both the employee plaintiffs and the employer asked the U.S. Supreme Court to review the Ninth Circuit’s decision.

Pertinent to the aggressive approach the DOL has recently taken in submitting unsolicited amicus briefs in significant cases, another issue the Supreme Court may review is the degree of deference, if any, the court owes to an amicus brief submitted by the DOL. Again in stark contrast, the Second Circuit gave the DOL’s amicus brief “controlling deference” to interpret the DOL’s own regulations while the Ninth Circuit gave the DOL’s amicus brief “no deference” finding it was a departure from established industry norm that the DOL used to short-cut the public notice – and – comment rule making procedures.

It would be a most welcome development for the Supreme Court to affirm the Ninth Circuit and resolve this dramatic split in the circuit courts. However, even if the Second Circuit’s view of the “outside salesman” exemption is upheld, there are circumstances when sales reps may be exempt by virtue of the administrative exemption. Employers need clarity to structure employment practices without the ever-present threat of class action litigation.