U.S. Supreme Court: Pharmaceutical Sales Reps are FLSA Exempt

The Supreme Court resolved a split between circuit courts and held that pharmaceutical sales representatives engage in "sales" and therefore are exempt under the Fair Labor Standards Act.

Under the FLSA and California law (and other states' laws), "outside salespersons" are exempt from minimum wage and over time law.

The issue for the Supreme Court was that pharmaceutical reps do not really "sell" drugs to doctors. They "sell" to the doctor that the doctor should promise to prescribe the pharma company's medicine.  Plaintiffs argued that because the rep makes no "sale" he or she should not be considered a salesperson.  Rather, they are non-exempt "promoters."

The Department of Labor took the position that Pharmaceutical reps were non-exempt beginning in 2009.  But the DOL's reasoning apparently evolved as to "why."  According to the Court, the Agency argued:

“[a]n employee does not make a ‘sale’ for purposes of the ‘outside salesman’ exemption unless he actually transfers title to the property at issue.” Brief for United States as Amicus Curiae 1213 (hereinafter U. S. Brief).13 .

That would seem to remove from the exempt a whole lot of sales persons who previously were exempt, and it was much narrower than regulations and prior case law.  So, the Court refused to defer to the DOL interpretation.

The decision was 5-4.  The dissent agreed that the government's own interpretation was not worth much.  But the dissent's opinion was that the duties performed do not amount to "sales" but rather were promotion activities and non-exempt.

This decision may not directly affect California's outside sales exemption. But it should, because California law does not go into any level of detail regarding what is an "outside salesman."  Therefore, the courts and agencies may will follow the Supreme Court's opinion regarding what counts as a sale.

The case is Christopher v. Smithkline Beecham and the opinion is here.

Ninth Circuit: Pharmaceutical Sales Representatives are Exempt under FLSA

The plaintiffs in Christopher v. SmithKline Beecham Corp. were pharmaceutical sales representatives. They visit doctors on behalf of the company and attempt to persuade the doctors to prescribe their particular drugs to patients.  The company argued that these employees were exempt as "outside sales." The employees argued they were not sales persons, primarily because the patients themselves were the buyers, not the doctors.

The Ninth Circuit disagreed, holding that pharmaceutical sales reps obtain "sales" by convincing a doctor to agree to prescribe the product (a non-binding commitment).

The case is interesting for two reasons. First, the court explains what kinds of activities the outside sales exemption covers, and there is not much case law on this in the Ninth Circuit. In particular, there is a lengthy discussion about the difference between "selling" and "promoting."  The former is exempt and the latter is not. Second, the court refused to follow the US Department of Labor's current position on the exemption, which carried the day in another case in the Second Circuit.  In re Novartis Wage & Hour Litig., 611 F.3d 141 (2d Cir. 2010).

California law should follow the FLSA outside sales exemption. So this case may be helpful in California cases as well.  But, as the Novartis case shows, the US DOL and some courts do not agree that pharmaceutical salespersons are exempt, so keep that in mind.

The case is Christopher v. SmithKline Beecham and the opinion is here.

Ninth Circuit Asks CA Supremes for Guidance on Wage and Hour

The Ninth Circuit has before it three cases involving pharmaceutical sales representatives. These folks visit with doctors and give them information on medications. The Ninth Circuit wants to know if these employees count as "outside salespersons" under California law. So, they asked the California Supreme Court for an opinion:

1. The Industrial Welfare Commission’s Wage Orders 1-2001 and 4-2001 define “outside salesperson” to mean “any person, 18 years of age or over, who customarily and regularly works more than half the working time away from the employer’s place of business selling tangible or intangible items or obtaining orders or contracts for products, services or use of facilities.” 8 Cal. Code Regs., tit. 8, §§ 11010, subd. 2(J); 11040, subd. 2(M). Does a pharmaceutical sales representative (PSR) qualify as an “outside salesperson” under this definition, if the PSR spends more than half the working time away from the employer’s place of business and personally interacts with doctors and hospitals on behalf of drug companies for the purpose of increasing individual doctors’ prescriptions of specific drugs?

If the sales representatives don't qualify as outside salespersons, because they don't take orders or actually sell the medications, the court wants to know if they qualify as "administrative" employees:

2. In the alternative, Wage Order 4-2001 defines a person employed in an
administrative capacity as a person whose duties and responsibilities involve (among other things) “[t]he performance of office or non-manual work directly related to management policies or general business operations of his/her employer or his employer’s customers” and “[w]ho customarily and regularly exercises discretion and independent judgment.” Cal. Code Regs., tit. 8 § 11040, subd. 1(A)(2)(a)(I), 1(A)(2)(b). Is a PSR, as described above, involved in duties and responsibilities that meet these requirements

The Ninth Circuit seeks guidance on the administrative test because California case law is sparse on what it means to "exercise discretion and independent judgment" for the administrative exemption, and whether the PSRs are involved in "office or non-manual work directly related ot management policies or general business operations" of Bayer's customers. The court appears to believe that California law on outside salespersons differs from the federal test under the FLSA such that reliance on FLSA cases would be of "limited" assistance.

The Supreme Court does not have to answer the questions. If the Court chooses not to, then the case will return to the Ninth Circuit for a prediction on how the Supreme Court would rule. Otherwise, this case could provide needed guidance in this area of wage and hour law.

The case is D'Este v. Bayer Corporation and the opinion/request for answers is here.