On June 18, 2012, the US Supreme Court issued a decision in Christopher v. SmithKline Beecham Corp. A key litigated issue was whether pharmaceutical sales representatives qualified as outside salespersons under the outside sales exemption to the FLSA's overtime requirements.

Petitioners Michael Christopher and Frank Buchanan worked for SmithKline Beecham as pharmaceutical sales representatives, calling on physicians in their respective assigned sales territories to discuss SmithKline Beecham's prescription drugs. Since federal law prohibits prescription drugs from being dispensed without a physician's prescription, the pharmaceutical sales representatives' goal was to obtain a nonbinding commitment from physicians to prescribe SmithKline Beechman's drugs. The representatives were paid both a base salary and incentive pay based on the sales volume or market share of their assigned drugs in their sales territories.

Christopher and Buchanan sued SmithKline Beecham, claiming the employer violated the FLSA by failing to pay them overtime, and sought backpay and liquidated damages. SmithKline Beecham moved for summary judgment, claiming the petitioners were outside salesmen and therefore exempt from the FLSA's overtime pay requirement. The district court granted their motion, and denied the petitioners' motion to alter or amend the judgment alleging that the court failed to defer to the DOL's interpretation of the relevant regulations implementing the FLSA.

On appeal, the US Court of Appeals for the Ninth Circuit affirmed the district court, agreeing that the DOL's interpretation was not entitled to controlling deference. The Ninth Circuit held that the petitioners made "sales" under the FLSA's regulations, since the nonbinding commitment that petitioners obtained from the physicians they visited was the maximum commitment possible given the restriction that prescription drugs may be dispensed only with a physician's prescription. The petitioners appealed to the US Supreme Court.

The US Supreme Court affirmed, holding that the petitioners qualified as outside salespersons under the FLSA and the DOL's implementing regulations and therefore were exempt from the FLSA's overtime requirements.

The Court first noted that the DOL's interpretation of the outside sales exemption had changed after the Court granted certiorari. Initially, the DOL filed amicus briefs in the Second Circuit and Ninth Circuit asserting that a sale for purposes of the exemption required a consummated transaction that directly involved the employee at issue. However, in its amicus brief to the Court, the DOL stated an employee must actually transfer title to the property at issue to make a sale. Although courts typically must defer to an agency's interpretation of its own ambiguous regulation, the Court found that deferring to the DOL in this case would be unfair to the pharmaceutical industry, since:

Additionally, the Court found the DOL's interpretation both unpersuasive and inconsistent with the FLSA, noting that:

Interpreting the FLSA itself, the Court found that since the FLSA exempts anyone employed "in the capacity of" an outside salesperson, the relevant inquiry should focus on the employee's job functions rather than the form of the job. The Court also found that the DOL regulations implementing the FLSA suggested a broader interpretation because:

In the context of the highly regulated pharmaceutical industry where pharmaceutical sales representatives cannot sell the drugs themselves, the Court found that obtaining a nonbinding commitment from physicians to prescribe the drugs qualified as an "other disposition." The Court added that this interpretation fit with the purpose of the sales exemption, to exempt those who normally earn salaries well above minimum wage from the FLSA's overtime protections.

Justice Breyer dissented, joined by Justices Ginsburg, Sotomayor and Kagan, arguing that although the DOL's interpretation was not due any deference, the pharmaceutical sales representatives were not exempt since their primary duty was not to make sales and they did not actually sell the drugs.

The US Supreme Court's decision resolves the split between the US Courts of Appeals for the Second and Ninth Circuits. The Second Circuit had held in In re Novartis Wage and Hour Litigation that the DOL's interpretation was entitled to controlling deference. The Court's decision not only establishes that pharmaceutical sales representatives qualify as outside salespersons, but is also noteworthy for the lack of deference the Court gave to the DOL's interpretation of its own regulations.

For more information on the FLSA's outside sales exemption, see Practice Note, Wage and Hour Law: Overview.