In a highly-anticipated decision, on June 18, 2012, the Supreme Court upheld the use of the outside sales exemption from the FLSA's overtime provisions as applied to pharmaceutical sales reps. In Christopher v. SmithKline Beecham Corp. [dba GlaxoSmithKline] the Court affirmed the holding of the Ninth Circuit to this effect, reminding all employers of the need to ensure that FLSA exemptions are being properly applied in their workplace.
The Supreme Court rejected the arguments of the Department of Labor, arising from its amicus brief it filed supporting the employees. The Court found that a shifting position by DOL, combined with lack of notice and opportunity to comment regarding their position, along with inherent lack of persuasiveness, doomed the interpretations found in the DOL brief.
The employees argued that they could not be held as outside sales employees under the FLSA because they did not actually engage in the sale itself. Among other things, they argued, they were prohibited technically from doing so. The DOL also argued that a sale did not occur by the reps because no transfer of title to the property occurred by them. The Court summarized the employees' theory as overly narrow: "that an employee is properly classified as a nonexempt promotional employee whenever there is another employee who actually makes the sale in a technical sense." The Court rejected these arguments and held that the FLSA's definition of "sale" under the outside sales exemption was broader than the plaintiffs and the DOL suggested, and could include the conduct of persuasion that culminated in a sale. In the end, the Court ruled in favor of the employer, adding clarity for employers in numerous areas on how to apply the outside sales exemption in general.
This case follows upon another favorable FLSA exemption ruling for employers in the pharma industry. On May 8, 2012, the Seventh Circuit Court of Appeals held on Schaefer-LaRose v. Eli Lilly & Co. that the pharmaceutical sales reps in that case were properly classified as exempt from the FLSA under the administrative exemption. That decision conflicts with a Second Circuit decision, but is in accord with a decision of the Third Circuit on this issue. Query whether the Supreme Court will resolve the debate as to that exemption -- the administrative exemption -- as well.
Practical tips: The case is a reminder to employers that proper use of the FLSA's exemptions matters. The employees were paid over $70,000 each, and overtime would have been a significant added expense if required. Employers should examine their existing exempt classifications (or lack thereof) for compliance with the latest developments in the law, such as this case. Also note that in this case, the employees appear to have had no little or no formal records of their actual time worked. Had the case gone against the employer, the issue of damages could have easily grown out of control by employees inflating their hours worked, assuming little documentation existed to rebut their claims. So, in addition to maintaining a proper classification system, employers should consider whether in their environments it is appropriate to record time worked in some manner for employees classified as exempt (not simply for those who are classified as non-exempt). In the end, this case is a victory for employers, but note that the DOL remains active in seeking to uncover wage-and-hour violations of all sorts.