Pharmaceutical Reps not Entitled to Overtime

By | July 3rd, 2012 | General

The Fair Labor Standards Act (FLSA) requires that employees be paid overtime wages for all hours worked in excess of 40, unless the employee fits into one of the FLSA’s narrow exceptions for certain white collar workers. For years, the pharmaceutical industry relied on the “outside sales exemption” to the FLSA to avoid overtime for pharmaceutical representatives who promote product to doctors to promote their products, even though no “sales” were actually directly made by these representatives. Over the past several years, however, reliance on this exemption has been challegenged. After the circuit courts across the country decided the issue differently, the Supreme Court agreed to hear the case of Christopher v. Smithkline Beecham Corp.

The Supreme Court upheld the practice of treating the representatives as exempt under the “outside sales exemption”. However, the case did much more than just uphold the practice. First, the Supreme Court flatly rejected the Department of Labor’s interpretation of what was a “sale”, finding that the DOL had waffled around and changed its position multiple times and therefore was not entitled to the deference to which such an interpretation ordinarily would be entitled. Additionally, the Supreme Court went on to say that the DOL’s opinion that a “nonbinding committment” from a physician to prescribe the drug in appropriate case was not a “sale” was unpersuasive and “lack[ed] the hallmarks of thorough consideration.” Ouch. According to the Supreme Court, the “outside sales exemption” was premised on the belief that exempt employees typically earn a salary considerably above the minimum wage and perform work that is difficult to allot a specific time frame and/or spread to other workers. The Court concluded that pharmaceutical reps — who earn an average of more than $70,000 per year — were “hardly the kind of employees that the FLSA was inteded to protect.” Something many have already noticed could be said about a whole lot of white collar workers.

Does this signal that the Supreme Court may be receptive to reviewing DOL policies that are overly rigid in interpreting this 1938 statute? Only time will really tell. However, with DOL audits at a high level, employers should use this as an opportunity to take another look at their employee classifications and determine if they have employees who may fit the “outside sales exemption” under the Supreme Court’s analysis.

If you need assistance with classifying employees, calculating overtime, responding to a DOL Wage & Hour Audit, or any other wage and hour issue, contact the Employers Legal Resource Center at 405-702-9797.

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