The Ninth Circuit Court of Appeals recently ruled that Pharmaceutical Sales Representatives (“PSR”) constituted “outside salesmen” who were exempt from overtime under the Fair Labor Standards Act (“FLSA”).
Specifically, in Christopher v. SmithKline (9th Cir., Feb. 14, 2011), a PSR sued his employer under the FLSA alleging a failure to pay overtime. The employer responded that the PSR was not entitled to overtime because he was an “outside salesman” under the FLSA. The district court agreed with the employer and ruled that the PSR was not entitled to overtime under the FLSA. The court also noted that the PSR was not an hourly employee, but instead earned salaries well above the minimum wage – sometimes up to $100,000 a year – and received bonuses in lieu of overtime as “an incentive to increase their efforts.”
On appeal, the PSR argued that he did not engage in “sales” as defined by the FLSA. The Ninth Circuit Court of Appeals rejected this argument, and noted that the phrase “other disposition” in Section 3(k) of the FLSA’s definition of “sale” was open-ended and applied to the activities that were performed by PSR’s. The court also recognized that PSR’s were hired for their sales experience, were trained in sales methods, encouraged physicians to prescribe their products, and received commissions-based compensation. The court then explained that the fact that the “buyer” in such transactions is really the physician, and not the ultimate end-user (the patient), because it is the physician who makes the decision on what medication to prescribe to a patient. Therefore, pharmaceutical sales are “unlike conventional retail sales” and, in this context, the “sale” is “the exchange of non-binding commitments between the PSR and physician at the end of a successful call.”
The Christopher decision is good news for pharmaceutical companies, for now.
Just yesterday, in a case involving the same issue, the U.S. Supreme Court declined to review a decision by the Second Circuit Court of Appeals in Novartis v. Lopes (2nd Cir., July 6, 2010). In that case, the court ruled that pharmaceutical sales representatives did not “sell” drugs, and therefore, were not outside salesmen who would be exempt from overtime under the FLSA. The fact that the Supreme Court declined to review the decision in Novartis is very interesting, because it could mean that the high Court is content to let the decision stand. If the Supreme Court later accepts an appeal for the Christopher case, however, it could be bad news for pharmaceutical companies because it could mean that the high Court might be inclined to reverse the Ninth Circuit’s decision. We will need to stay tuned to see what happens with this case.
You can read a copy of the Christopher decision here, and a copy of the Novartis decision here.