Who Is Exempt From Overtime? Drug Sales Reps, For One, And Here’s Why You Should Care

On June 18, 2012, the United States Supreme Court ruled in favor of the pharmaceutical industry in a closely followed case (Christopher v. SmithKline Beecham Corp.) to do with overtime exemption for drug sales representatives.

 In short, SCOTUS ruled that pharmaceutical sales reps are in fact exempt from overtime – and, according to law firm Proskauer Rose, “while the decision will immediately affect the pharmaceutical industry – which now can safely treat its sales representatives as exempt from overtime without the specter of massive amounts of retroactive back pay liability – it also could have an impact on other industries, as well as the viability of the DOL’s amicus brief program and Administrator Interpretation letters.”

In other words, the overtime decision has implications for employers beyond Pharma. To whit:

“The decision suggests that when presented with cases involving attempts by federal agencies to alter accepted regulatory practices, the Court will place significant value on the predictability of federal regulatory positions, and will not give new agency positions – particularly those it sees as having been sprung on the regulated community – much if any deference.” (Pierce Atwood LLP)

The Fair Labor Standards Act (FLSA) states that outside sales reps are exempt from overtime; however, the Act does not define “outside sales.” As a consequence:

“The Supreme Court’s broad, functional interpretation of the outside sales exemption will affect other litigation over the boundaries of that exemption and other FLSA exemptions. The Court cabined its holding to the situation where ‘an entire industry is constrained by law or regulation from selling its products in the ordinary manner,’ but it is possible that employees in other industries may be found to perform a function that is ‘tantamount … to a paradigmatic sale of a commodity’ within that industry’s regulatory environment and thus to come within the outside sales exemption as interpreted in Christopher. More generally, the Court’s rejection of a bright-line ‘transfer of title’ requirement and its reasoning that the FLSA attempts to ‘accommodate industry-by-industry variations’ may encourage lower courts to read the Act’s other exemptions in a more pragmatic, less formalistic manner. Employers in other industries should consider whether Christopher opens the door to an argument that an exemption applies…” (King & Spalding)

Or, as law firm Foley Hoag puts it:

“By rejecting a narrow interpretation of the exemption, the Smithkline decision suggests that sales employees may fall under the ‘outside sales’ exemption, even if they do not actually obtain orders or binding commitments from customers.”

However, words of caution from law firm Duane Morris:

“Employers should remain alert. While Christopher may prompt courts to interpret the FLSA’s outside sales exemption more broadly, the DOL is unlikely to become less aggressive. In its enforcement efforts, the DOL may proceed as though Christopher has little to no implication beyond the position at issue. While Christopher may provide employers with additional means to defend against extreme DOL positions in court, employers would still need to get to court to use them. These cases are expensive to litigate, so even the victories are somewhat pyrrhic.

Finally, states may offer greater overtime pay protections than federal law. Thus, an employee who is exempt under the FLSA may not be exempt under state law. Companies that employ outside sales representatives should therefore ensure compliance with state and federal laws. Of course, this would be true of all positions.”

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