Christopher et al. v. Smithkline Beecham Corp., dba Glaxosmithkline holds, 5-4, that pharma sales reps are exempt as "outside salespersons"

The United States Supreme Court, in Christopher et al. v. Smithkline Beecham Corp., dba Glaxosmithkline (June 18, 2012), examined the question of whether pharmaceutical sales representatives, whose primary duty was to obtain nonbinding commitments from physicians to prescribe their employer’s prescription drugs, were correctly classified as exempt from overtime pay requirements set forth in the Fair Labor Standards Act.  In the courts below, defendant moved for summary judgment, arguing that plaintiffs were “employed in the capacity of outside salesman,” §213(a)(1), and therefore were exempt from the FLSA’s overtime compensation requirement. The District Court agreed and granted summary judgment to defendant. Plaintiffs filed a motion to alter or amend the judgment, contending that the District Court had erred in failing to accord controlling deference to the DOL’s interpretation of the pertinent regulations, which the DOL had announced in an amicus brief filed in a similar action. The District Court rejected this argument and denied the motion. The Ninth Circuit, agreeing that the DOL’s interpretation was not entitled to controlling deference, affirmed.

The opinion was decided on sharply divided 5-4 lines, with one majority opinion and one minority opinion. The opinion considered three of the DOL’s regulations: §§541.500, 541.501, and 541.503. The Court referred to the three regulations as the “general regulation,” the “sales regulation,” and the “promotion-work regulation,” respectively.

First, the majority observed that the DOL’s own interpretation of its regulations was not consistent over time. In briefs filed before the Second and Ninth Circuits, “the DOL took the view that ‘a “sale” for the purposes of the outside sales exemption requires a con- summated transaction directly involving the employee for whom the exemption is sought.’” Slip op., at 9. After certiorari was granted in this matter, the DOL took the position 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.’ ” Slip op., at 9.

Next, the majority observed that Auer deference to the DOL’s ambiguous regulations was not justified because to do so would allow for imposition of “potentially massive liability on respondent for conduct that occurred well before that interpretation was announced.” Slip op., at 10. Continuing, the Court said:

Until 2009, the pharmaceutical industry had little reason to suspect that its longstanding practice of treating detailers as exempt outside salesmen transgressed the FLSA. The statute and regulations certainly do not provide clear notice of this. The general regulation adopts the broad statutory definition of “sale,” and that definition, in turn, employs the broad catchall phrase “other disposition.” See 29 CFR §541.500(a)(1). This catchall phrase could reasonably be construed to encompass a nonbinding commitment from a physician to prescribe a particular drug, and nothing in the statutory or regulatory text or the DOL’s prior guidance plainly requires a contrary reading. See Preamble 22162 (explaining that an employee must “in some sense” make a sale); 1940 Report 46 (same).

Slip op., at 12. Then the majority noted that, despite the industry’s decades of applying an exempt classification, the DOL never initiated any enforcement action.

The majority then discussed the DOL’s interpretations and found them unpersuasive, particularly with respect to the definition of “sale.” The Court held:

This new interpretation is flatly inconsistent with the FLSA, which defines “sale” to mean, inter alia, a “consignment for sale.” A “consignment for sale” does not involve the transfer of title. See, e.g., Sturm v. Boker, 150 U. S. 312, 330 (1893) (“The agency to sell and return the proceeds, or the specific goods if not sold . . . does not involve a change of title”); Hawkland, Consignment Selling Under the Uniform Commercial Code, 67 Com. L. J. 146, 147 (1962) (explaining that “‘[a] consignment of goods for sale does not pass the title at any time, nor does it contemplate that it should be passed’” (quoting Rio Grande Oil Co. v. Miller Rubber Co. of N. Y., 31 Ariz. 84, 87, 250 P. 564, 565 (1926))).

Slip op., at 15. The majority then spends some time construing the regulation itself, concluding that the language of the statute was intended to broadly include all manner of transactions that, in certain industries, were tantamount to a sale in the most conventional sense. In the regulated industry of pharmaceutical sales, the majority observed that the representatives did all that was allowed:

Obtaining a nonbinding commitment from a physician to prescribe one of respondent’s drugs is the most that petitioners were able to do to ensure the eventual disposition of the products that respondent sells. This kind of arrangement, in the unique regulatory environment within which pharmaceutical companies must operate, comfortably falls within the catch- all category of “other disposition.”

Slip op., at 20-21.

The minority opinion, authored by Justice Breyer, accepted the majority’s description of the job in question and agreed that deference to the DOL interpretation was not justified given the recent change in that interpretation. Instead, the minority opnion simply disagrees with the construction of the language at issue:

Unless we give the words of the statute and regulations some special meaning, a detailer’s primary duty is not that of “making sales” or the equivalent. A detailer might convince a doctor to prescribe a drug for a particular kind of patient. If the doctor encounters such a patient, he might prescribe the drug. The doctor’s client, the patient, might take the prescription to a pharmacist and ask the pharmacist to fill the prescription. If so, the pharmacist might sell the manufacturer’s drug to the patient, or might substitute a generic version. But it is the pharmacist, not the detailer, who will have sold the drug.

Minority slip op., at 3. The minority opinion concludes that the representatives stimulate sales eventually made by others:

The detailer’s work, in my view, is more naturally characterized as involving “[p]romotional activities designed to stimulate sales . . . made by someone else,” §541.503, e.g., the pharmacist or the wholesaler, than as involving “[p]romotional activities designed to stimulate” the detailer’s “own sales.”

Minority slip op., at 5. The minority emphasized the fact that doctors determine what to prescribe, based on medical need:

To the contrary, the document makes clear that the pharmaceutical industry itself understands that it cannot be a detailer’s “primary duty” to obtain a nonbinding commitment, for, in respect to many doctors, such a commitment taken alone is unlikely to make a significant difference to their doctor’s use of a particular drug. When a particular drug, say Drug D, constitutes the best treatment for a particular patient, a knowledgeable doctor should (hence likely will) prescribe it irrespective of any nonbinding commitment to do so. Where some other drug, however, is likely to prove more beneficial for a particular patient, that doctor should not (hence likely will not) prescribe Drug D irrespective of any nonbinding commitment to the contrary.

Minority slip op., at 6. The minority concluded by dismissing the majority’s fears that a salesman who takes an order would suddenly become non-exempt by transferring the order to jobber’s employee to be filled. The minority noted that the example created no basis for fear, given that the salesman had obtained a firm commitment to buy the product. Regardless of the quality of the counter-arguments, the minority opinion by Justice Breyer is just that, a minority opinion, and "sales" are evidently in the eye of the beholder.