On June 18, 2012, the U.S. Supreme Court ruled that pharmaceutical sales representatives qualify as outside salesmen and, thus, are exempt from the overtime requirements of the Fair Labor Standards Act (“FLSA”). Christopher et al. v. SmithKline Beecham Corp., dba GlaxoSmithKline, No. 11-204.  Although an important decision to the pharmaceutical industry and for pharmaceutical sales reps in its own right, this decision may also serve to provide insight as to the weight the current Court will give to agencies’ views of the laws and regulations they enforce.
Factual Background
Defendant, SmithKline Beecham Corporation (“SmithKline”) is a pharmaceutical company that develops, manufactures, and sells prescription drugs.  Pharmaceutical companies promote their drugs to physicians through a process called "detailing," by which their employees ("detailers" or "pharmaceutical sales representatives") provide information to physicians about the company’s products in hopes of persuading them to write prescriptions. These representatives’ primary duty is to obtain nonbinding commitments from physicians to prescribe their employer’s prescription drugs.
SmithKline did not pay their pharmaceutical sales reps time-and-one-half wages when they worked in excess of 40 hours per week, and several of the sales reps brought suit against the company arguing that it violated the FLSA by failing to compensate them for overtime hours worked. The trial judge ruled in favor of SmithKline. The sales reps filed a motion to alter or amend that judgment, contending that the trial judge had erred in failing to give controlling deference to the Department of Labor’s interpretation of the applicable regulations. The trial judge denied that motion, and the Ninth Circuit Court of Appeals affirmed, agreeing that the Department of Labor’s interpretation was not entitled to controlling deference.  The issue was ultimately brought before the U.S. Supreme Court.
Outside Sales Exemption
While the FLSA requires employers to compensate employees who work over 40 hours per week at a rate of one-and-one half times the employees’ regular wages, it exempts various classifications of workers from the requirement to pay overtime.  One such exemption is the “outside salesperson exemption.”  The FSLA defines an outside salesperson as an employee (1) whose primary duty is: (i) making sales within the meaning of Section 3(k) of the FLSA; or (ii) obtaining orders or contracts for services or for the use of facilities for which consideration will be paid by the client or customer; and (2) who is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.  29 C.F.R. § 541.500(a).
No Deference Afforded to Department of Labor’s Interpretation of Outside Salesperson Exemption
The Department of Labor initially announced its view that pharmaceutical sales reps are not exempt outside salesmen in a 2009 amicus brief filed in the Second Circuit.  However, the agency later changed its views on what constitutes a "sale" for the purposes of the outside sales exemption, and subsequently determined that "[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." Given the new interpretation, the plaintiffs argued that because it is illegal for pharmaceutical sales reps and physicians to exchange money for pharmaceutical products, the pharmaceutical sales reps do not actually make sales.  They further argued that obtaining a non-binding commitment to prescribe drugs does not constitute a sale, and both the reps and the Department of Labor argued that the new interpretation was entitled to deference.
The Court found the new interpretation to be "flatly inconsistent with the FLSA," which defines the term "sale" to mean a "consignment for sale" that does not involve the transfer of title, and the Court concluded that the Department of Labor’s interpretation was neither entitled to deference "nor persuasive in its own right."
The Court noted that the definition of outside salesperson in the Department of Labor’s regulation includes a "broad catchall phrase: ‘other disposition,’” which is "most reasonably interpreted as including those arrangements that are tantamount, in a particular industry, to a paradigmatic sale of a commodity." Obtaining a nonbinding commitment from a physician to prescribe a drug, which was "the most that petitioners were able to do to ensure the eventual disposition" of the Company’s products "comfortably falls within the catch-all category of ‘other disposition’." Based on this interpretation, the Court ruled that the pharmaceutical sales reps make “sales” for purposes of the FLSA, and, therefore they are exempt outside salespersons within the meaning of the Department of Labor’s regulations.
Accordingly, the Court determined that, since pharmaceutical sales reps “bear all of the external indicia of salesmen,” exempt classification is consistent with the purpose of the FLSA’s exemption for outside salesmen.