In a blow to a U.S. Department of Labor position, a divided Supreme Court ruled today that pharmaceutical sales representatives qualify for the “outside sales” exemption of the Fair Labor Standards Act. In an opinion delivered by Justice Samuel Alito, the Court found that under the most reasonable interpretation of DOL regulations, PSRs qualified as “outside sales” employees who are therefore exempt from the FLSA’s overtime requirements. The Court made this ruling notwithstanding amicus briefs from the U.S. Department of Labor arguing that PSRs did not qualify as “outside sales” employees. The decision, Christopher v. SmithKline Beecham Corp., No. 11-204, found that DOL’s position conflicted with the FLSA.
Normally, reviewing courts defer to an agency’s interpretation of the agency’s own ambiguous regulation, even when that interpretation is advanced in a legal brief. However, this general rule does not apply in all cases. Deference is inappropriate, for example, when the agency’s interpretation is plainly erroneous or inconsistent with the regulation.
In this case, the thrust of DOL’s argument was that PSRs do not actually make a “sale.” (Rather, they simply market the drug product to doctors.) However, the statute defines “sale” to mean, among other things, a “consignment for sale,” and a “consignment for sale” does not involve the transfer of title. Thus, DOL’s interpretation of “sale” was inconsistent with the language of the FLSA itself.
Moreover, while the FLSA itself does not specifically speak to the question of PSRs, it does provide an interpretive clue by broadly exempting anyone “employed . . . in the capacity of [an] outside salesman.” The statute’s emphasis on “capacity” counsels in favor of a functional, rather than a formal, inquiry, one that views an employee’s responsibilities in the context of the particular industry in which the employee works.
Given this broad reading, it follows that PSRs made sales under the FLSA and thus are exempt outside salesmen within the meaning of the DOL’s regulations. They obtain nonbinding commitments from physicians to prescribe drugs. This kind of arrangement, in the unique regulatory environment within which pharmaceutical companies operate, is the only way PSRs can make sales. That PSRs bear all the external indicia of salesmen provides further support for this conclusion.
Finally, the Court added, the holding comports with the apparent purpose of the FLSA’s exemption. FLSA exemptions are premised on the belief that exempt employees normally earn salaries well above the minimum wage and perform a kind of work that is difficult to standardize to a particular time frame. The PSRs in this case, each of whom earned an average of more than $70,000 per year and spent 10 to 20 hours outside normal business hours each week performing work related to his assigned portfolio of drugs in his assigned sales territory, are hardly the kind of employees that the FLSA was intended to protect.