Employment-Supreme Court Rules That Pharmaceutical Outside Salesmen Are Exempt From FLSA Overtime Requirements

In Christopher v. Smithkline Beecham Corp. (S. Ct. June 18, 2012) , the U.S. Supreme Court faced the issue of whether outside salesmen of a pharmaceutical company are exempt from the overtime requirements of the Fair Labor Standards Act (the “FLSA”).

The Court said that the FLSA requires employers to pay employees overtime wages (29 U. S. C. §207(a)), but this requirement does not apply with respect to a worker employed in the capacity of an outside salesman (§213(a)(1)). The Department of Labor (“DOL”) regulations elaborate on the meaning of “outside salesman”. Primarily, they define the term to mean any employee whose primary duty is making sales within the meaning of FLSA §203(k) (29 CFR §541.500). FLSA § 203(k), in turn, states that sale or sell includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition. The DOL provided additional guidance in connection with its promulgation of these regulations, stressing that an employee is an “outside salesman” when the employee in some sense, has made sales (69 Fed. Reg. 22162).

In this case, the plaintiffs were employed by Smithkline Beecham Corp. (“Smithkline”) as pharmaceutical sales representatives for roughly four years. During that time, their primary objective was to obtain a nonbinding commitment from physicians to prescribe Smithkline’ s products in appropriate cases. Each week, each of the plaintiffs spent about 40 hours in the field calling on physicians during normal business hours and an additional 10 to 20 hours attending events and performing other miscellaneous tasks. They were not paid time-and-a-half wages when they worked more than 40 hours per week. The plaintiffs filed this suit, alleging that Smithkline violated the FLSA by failing to compensate them for overtime.

The Court ruled that the plaintiffs qualify as “outside salesmen” under the FLSA and are thus exempt from its overtime requirements. The Court said that the plaintiffs made sales under the FLSA and thus are exempt outside salesmen within the meaning of the DOL’s regulations. The plaintiffs obtain nonbinding commitments from physicians to prescribe Smithkline’ s drugs. This kind of arrangement comfortably falls within the catchall category of “other disposition” in the applicable definition of “sale”. That the plaintiffs bear all of the external indicia of salesmen provides further support for the Court’s conclusion.