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Under the Fair Labor Standards Act ("FLSA"), outside sales employees are exempt from overtime payment requirements. Outside sales employees are those whose primary duty involves customarily and regularly making sales at a customer's place of business, instead of their employer's place[s] of business. Sales can include any sale, exchange, contract to sell, or other disposition. Accordingly, the U.S. Department of Labor ("DOL") has spent over 70 years deeming pharmaceutical sales representatives, who visit physicians' offices to persuade them to prescribe certain products, to be overtime-exempt outside sales employees under the FLSA. That is, until recently.
When a pharmaceutical sales representative sued his employer for overtime pay under the FLSA, the DOL took the position that pharmaceutical sales representatives were not exempt from overtime pay under the outside sales exemption because they did not make an actual "sale." The United States Supreme Court, however, affirmed the district court and the Ninth Circuit Court of Appeals and followed precedent by ruling for the employer. In Christopher v. SmithKline Beacham (June 18, 2012), a 5-4 majority dismissed the employee's suit for overtime pay, affirming the long-standing interpretation of pharmaceutical sales representatives as outside sales employees under the FLSA and affording no deference to the DOL's new interpretation of "sale," which would require an employee to actually transfer title.
The Court pointed out four major flaws in the DOL's new interpretation, including the interpretation's likelihood of subjecting employers to massive liability for events occurring before the change in interpretation, the lack of evidence demonstrating the industry was acting unlawfully, the DOL's failure to afford opportunity for public comment, and the interpretation's inconsistency with the FLSA.
Since the FLSA deems activities such as consignment and other disposition as sale, both of which do not necessarily involve transfer of title, the new interpretation is inconsistent with the FLSA and pharmaceutical sales representatives therefore remain outside sales employees exempt from overtime provisions.
This case serves as an important reminder for all employers to carefully review classifications of your employees, as either exempt or non-exempt employees.
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