By: Sandra González
Since our previous post, Should Sales Representatives Be Entitled to Overtime Pay?, we have continued to track the circuit split between the Second and Ninth Circuits on the issue of whether pharmaceutical sales representatives are entitled to overtime-pay. The United States Court of Appeals for the Second Circuit found that sales representatives were not exempt from the Fair Labor Standards Act (“FLSA”) overtime-pay requirements, thus, they were entitled to overtime-pay. In re Novartis Wage and Hour Litigation, 611 F.3d 141 (2d Cir. 2010). However, the United States Court of Appeals for the Ninth Circuit ruled that pharmaceutical sales representatives are not entitled to overtime pay under FLSA. Christopher v. SmithKlineBeecham Corp., 635 F.3d 383 (9th Cir. 2011). Notably, two weeks after the Ninth Circuit decided Christopher, the Supreme Court denied review of the Second Circuit’s decision. The Court’s denial of certiorari left many wondering about the repercussions that the circuit split would have on the industry. Last month, PhRMA filed an amicus brief with the Supreme Court in which the organization requested review of the Ninth Circuit’s decision. In that brief, PhRMA stated that “[u]ntil this circuit split is resolved, PhRMA members are exposed both to potentially staggering retrospective liability and to uncertainty over whether they must undertake major restructuring that would have significant consequences for the industry and its employees[.]”
On November 28, 2011, the Supreme Court agreed to review the Ninth Circuit’s case. Upon review, the Supreme Court will examine two issues: (1) whether deference is owed to the Secretary of the U.S. Department of Labor’s interpretation of the FLSA’s outside sales exemption and related regulations; and (2) whether the FLSA’s outside sales exemption applies to pharmaceutical sales representatives.
Regarding the first issue, the Department of Labor (“Department”) sided with the sales representatives in Christopher, stating that the outside sales exemption in the FLSA does not apply to pharmaceutical sales representatives. Furthermore, in its brief to the Supreme Court, the Department stated that the Ninth Circuit’s opinion undermines “several decisions of the Supreme Court . . . instructing courts to defer to an agency’s interpretation of its own regulation unless ‘that interpretation is plainly erroneous or inconsistent with the regulation[.]’” The Department argues that by denying deference to the Secretary’s interpretation, the Ninth Circuit has wrongfully expanded the definition of the outside sales exemption.
The second issue will turn on the Supreme Court’s classification of the activities that pharmaceutical sales representatives engage in as “promotional” or as “making sales.” If the Supreme Court rules that pharmaceutical sales representatives engage in promotional activities and do not “make sales,” the FLSA outside sales exemption would no longer apply and, absent application of another exemption, such as the administrative exemption, pharmaceutical companies would face multi-billion dollar repercussions.
The Supreme Court will likely decide the issue in June of 2012. Until then, we are left with a number of questions: Why did the Supreme Court deny review of the Second Circuit’s decision, but grant review of the Ninth Circuit’s ruling? Does the Supreme Court agree with the Second Circuit’s ruling? If so, what are the implications for pharmaceutical companies? Should companies start rethinking the industry’s current selling model and their current organizational structures?