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June 25, 2012

Exemption Decision on Pharmaceutical Reps Could Affect Your Sales Force

Filed under: Compensation,Employment Law,FLSA — Tags: 9:22 pm

This week the Supreme Court ruled 5-4 on the Christopher v. SmithKline Beecham Corp which held that pharmaceutical reps are subject to the “outside sales” exemption to the overtime requirements of the Fair Labor Standards Act.  You may dismiss this as something not pertaining to you if your organization doesn’t have pharmaceutical sales reps.  But actually there are some important decisions made as part of this ruling which could apply to your sales force.

The issue for the Supreme Court was that pharmaceutical reps do not really “sell” drugs to doctors.  Based on the heavy regulation within the pharmaceutical industry, reps are not allowed to sell directly to the public or even to doctors.  Instead, they call on doctors and persuade them to make a non-binding commitment to promote their products in appropriate cases.  Thus, the plaintiff’s argument – the rep makes no “sale” but instead is a nonexempt “promoter”.

The Department of Labor took the position that drug reps were nonexempt beginning in 2009.  Their argument was 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.”  The DOL’s reasoning would seem to remove a whole lot of sales persons who previously were exempt, much more narrowly defining the regulations and prior case law.

The Supreme Court’s decision reinforces the practices of the past 70 years defining “sales” is expansive and functional.   Below are some of the issues cited to support this decision:

*that the language of the FLSA included not only “direct sales” but also “consignments to sale” and exchanges;

*that, in giving examples of what might be “sales” for purposes of the exemption, Congress had used the word “includes” rather than “means,” indicating that the examples were not intended to be unduly limiting;

*that Congress had included “or other disposition” as a catch-all, which should reasonably be interpreted as accommodating industry-by-industry variations in methods of selling commodities.

For the complete opinion of the case, you may click here.

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