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On June 18, 2012, the U.S. Supreme Court sided with
pharmaceutical companies in a case that could have cost the
industry billions in unpaid overtime wages and related costs. In
Christopher v. SmithKline Beecham Corp., No. 11-204 (June
18, 2012), the Court held in a 5-4 decision that pharmaceutical
sales representatives ("PSRs") who promote sales of
prescription drugs but do not themselves transact the sales,
qualify as "outside salesmen" under the most reasonable
interpretation of the Fair Labor Standards Act ("FLSA")
and are thus exempt from FLSA's overtime wage requirements. In
affirming the Ninth Circuit's holding that the PSRs qualify as
"outside salesmen," the Court resolved a circuit split
(overruling a recent Second Circuit decision on the issue) and also
rejected the Department of Labor's ("DOL")
interpretation of the statute.
The Court first addressed the issue of whether the DOL's
position was entitled to deference. The Court found that, although
Auer v. Robbins, 519 U.S. 452 (1997), ordinarily calls for
deference to an agency's interpretation (even when advanced in
a legal brief), deference in this case was inappropriate where (1)
the DOL's reasoning for its interpretation has been
inconsistent, (2) adopting the interpretation would result in
"unfair surprise" to the pharmaceutical industry, and (3)
the DOL's interpretation was unpersuasive.
The Court then applied rules of statutory construction to
interpret the FLSA and regulations and determined that obtaining a
nonbinding commitment from a physician to prescribe drugs was
tantamount to a "sale" or "other disposition"
under the statute. The Court emphasized that the PSRs exhibited all
of the external indicia of salesmen and that the Court's
finding comported with the purposes of the FLSA since PSRs
"typically earned salaries well above the minimum wage"
and as employees who "earned an average of more than $70,000
per year. [PSRs] are hardly the kind of employees that the FLSA was
intended to protect."
The case split the Court along ideological lines. Justice Alito
wrote the majority opinion, joined by Chief Justice Roberts and
Justices Scalia, Kennedy and Thomas. Justice Breyer filed a
dissenting opinion, in which Justices Ginsberg, Sotomayor and Kagan
joined.
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