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Supreme Court Rules Drug Representatives Do Not Qualify for Overtime Pay

In its June 2012 ruling in Christopher v. SmithKline Beecham Corp. the U.S. Supreme Court concluded that pharmaceutical sales representatives do not qualify for overtime pay as specified in the Fair Labor Standards Act (FLSA).

In the 5-4 decision, the Court overruled the Department of Labor's (DOL) interpretation of its own rules in deciding that pharmaceutical representatives are outside salespeople, and, as such, are not entitled to overtime pay when working more than 40 hours a week.

Generally, under the FLSA, jobs can be classified as exempt or non-exempt depending on whether they meet one of several exemption tests as laid out in the FLSA. Outside sales people are in the exempt category. Non-exempt employees must be paid time-and-a-half if they work more than 40 hours a week, while exempt employees do not receive such benefits.

The DOL had determined that the SmithKline Beecham pharmaceutical representatives were not truly outside sales people because they didn't exactly make "sales," but rather used their skills to persuade doctors about the benefits of their drugs with the hope that the doctors would then prescribe them. The Supreme Court disagreed.

The court did not concur with the DOL's definition of "sale" and said that the DOL's interpretation lacked "the hallmarks of thorough consideration." Further, the Court determined that the pharmaceutical representatives fit under the rubric of an outside salesperson in the following ways: 1.) they were hired based on their sales experience; 2.) they worked outside the office with minimal supervision, and 3.) they were granted "incentive pay," which was uncapped and on top of their base salaries.

In the majority opinion, Justice Samuel Alito remarked that because the SmithKline Beecham representatives typically earned more than $70,000 a year, they were "hardly the kind of employees that the FLSA was intended to protect."

It seems that the Supreme Court in this decision has increased the definition of what is considered a "sale," which could have implications for the status determinations of sales positions in other industries. Further, even though the DOL's rulings still carry weight, it is interesting to note that the Supreme Court did not accord them absolute deference in interpreting their own rules, and, therefore, it might embolden other employers to challenge rulings in similar cases.

Source: smartclock.wordpress.com (courtesy of Zanesville Times Recorder),

"Supreme Court overrules Department of Labor's wage and hour decisions, but there might be more to come," Jim Evans, 8/09/2012

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