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In an anxiously awaited decision the Supreme Court handed down a 5-4 decision today holding that Pharmacy Reps are not entitled to overtime. Affirming the Ninth Circuit’s decision holding pharma reps to be outside sales exempt the conservative majority’s decision was delivered by Justice Alito.
Click Christopher v. Smithkline Beecham Corp. to read the entire decision.
U.S.S.C.: Court Grants Certiorari to PSRs on Appeal of 9th Circuit Decision Holding Pharma Reps Exempt Under the FLSA’s Outside Sales Exemption
Christopher v. SmithKline Beecham Corp.
In a case with far sweeping ramifications for the pharmaceutical industry and its employees, the Supreme Court has granted certiorari to revisit the Ninth Circuit’s decision that held pharmaceutical representatives (pharma reps) to be exempt under the FLSA’s outside sales exemption, and therefore, entitled to overtime. The Supreme Court has granted Plaintiff’s Petition for Cert, and therefore the issue remains largely unresolved. In a decision discussed here, the Second Circuit had previously held that the pharma reps were non-exempt, notwithstanding the pharmaceutical companies’ arguments that they were outside sales and/or administrative exempt. While, the Third Circuit agreed that pharma reps were not outside salespeople because they did not complete any sales, in several cases, it has reached the conclusion that pharma reps are exempt under the administrative exemption. Most recently, the Ninth Circuit held that, notwithstanding the fact that pharma reps cannot and do not consummate sales, their promotional activities are close enough to render them exempt under the outside sales exemption. The Supreme Court has now granted cert in the Ninth Circuit case to potentially resolve the issue.
The Department of Labor had submitted an Amicus Brief in support of the employees in both the Second and Ninth Circuit cases. While the Second Circuit relied on the DOL’s Brief in large part, reaching its conclusion that the pharma reps are non-exempt, the Ninth Circuit rejected the arguments in the Brief. Now, the stage is set for the Supreme Court to resolve the conflict between the circuits once and for all.
The 2 certified issues the Supreme Court is set to hear are:
(1) Whether deference is owed to the Secretary of Labor’s interpretation of the Fair Labor Standards Act’s outside sales exemption and related regulations; and (2) whether the Fair Labor Standards Act’s outside sales exemption applies to pharmaceutical sales representatives.
Visit the scotusblog to read the full decision below as well as the parties’ briefings to date in Christopher v. SmithKline Beecham Corp.
S.D.Fla.: Pharma Rep (PSR) Entitled to Overtime If She Worked Over 40 Hours; Administrative and Outside Sales Exemptions Inapplicable
Palacios v. Boehringer Ingelheim Pharmaceuticals, Inc.
Pharmaceutical companies have been involved in a series of cases in recent years, regarding the exempt status of their pharmaceutical sales representatives (“PSRs”). While the DOL has stated in a multiple amicus briefs that PSRs performing typical duties are not exempt under either the outside sales exemption or administrative exemption, the industry has stubbornly refused to reclassify its PSRs as non-exempt and begin paying overtime.
In the most recent case, Judge Ursula Ungaro in the Southern District of Florida joined the Second Circuit, the DOL and several other District-level courts around the country, and held that a Boehringer PSR was neither outside sales exempt nor administratively exempt.
First, the court rejected the contention that the plaintiff was subject to the outside sales exemption. Noting that she could not be outside sales exempt, if she did not perform sales, the court explained:
“Here, there is no dispute that Plaintiff was not permitted to give healthcare providers drugs in exchange for anything of value. It is also undisputed that the employees in Boehringer’s Trade Relations and Managed Markets sell drugs to retailers, and the retailers sell the drugs to patients with prescriptions for them. Moreover, there is no dispute that Plaintiff was not an employee in the Trade Relations and Managed Markets groups. Thus, none of the work that Plaintiff performed involved the “transfer of title to tangible property.” At best, Plaintiff’s presentation of Boehringer’s core message to physicians was non-exempt promotional work that was incident to the sales made by individuals in the Trade Relations and Managed Market groups. Accordingly, the Court agrees with the Second Circuit’s rationale. Plaintiff’s inability to transfer ownership of any one of the drugs she was responsible for in exchange for money, her inability to take a purchase order for any of the drugs, and her inability to obtain a binding commitment from physicians to prescribe a drug, renders her unable to make a “sale” as defined under the FLSA and its implementing regulations. See In re Novartis, 611 F.3d at 154.”
In a footnote, the court discussed the fact that it was declining to follow the Ninth Circuit’s liberal reading of the phrase “sale.”
Specifically, the court said:
“The Court declines to follow the Ninth Circuit’s liberal reading of the phrase “sale” and its tenuous application of the outside sales exemption to PSRs. The crux of the Ninth Circuit’s reasoning in SmithKline Beecham is as follows: Because the products for which PSRs are responsible may be legally dispensed only with a prescription written by a licensed healthcare provider, the relevant purchaser is the healthcare provider, and thus PSRs make a “sale” when they obtain non-binding commitments from providers that they will write a prescription. 635 F.3d at 396. The undersigned disagrees with the contention that the relevant purchaser is the healthcare provider. First, the healthcare provider is not bound to write a prescription just because she tells a PSR that she will. Second, even if the provider writes a prescription, she does not actually purchase anything. The prescription merely allows a patient to purchase a given drug; it does not guarantee that there will be a “transfer of title to tangible property” because the prescription does not obligate the patient to purchase the drug. Accordingly, PSRs like Plaintiff cannot make a “sale” to physicians, because physicians cannot purchase the drugs.”
The court also held that plaintiff’s duties failed to satisfy either prong of the administrative exemption’s duties requirements. The court explained:
“Here, Plaintiff was not involved in “running or servicing” Boehringer’s business. Instead, Plaintiff worked out of her vehicle or in physicians’ offices communicating to physicians Boehringer’s carefully scripted core message. Boehringer has separate departments in its corporate headquarters that are responsible for preforming administrative duties and running and servicing its business. For example, Boehringer has separate Trade Relations and Managed Markets groups, and separate advertising, sales operation, and commercial analytics departments. Plaintiff never worked in any of these groups or departments. Plaintiff’s role was to merely perform promotional work that aided these departments in their duties. Plaintiff also was not involved in Boehringer’s “management policies or general operations.” She never performed any work in the functional areas of tax, finance, accounting, auditing, advertising, research and development, personnel management, human resources, labor relations, government relations, or information technology. Accordingly, Plaintiff’s role was not related to the management or general business operations of Boehringer.”
After holding that plaintiff’s role was not related to the management or generatl business operations of defendant, it also addressed the plaintiff’s lack of independent discretion:
“In comparing Plaintiff’s primary duties against the factors set forth in § 541.202(b), the Court finds no evidence in the record that Plaintiff had any authority to formulate, affect, interpret, or implement Boehringer’s management or operating policies, or that she was involved in planning Boehringer’s long-term or short-term business objectives, or that she carried out major assignments in conducting the operation of Boehringer’s business, or that she had any authority to commit Boehringer in matters that have significant financial impact. See In re Novartis, 611 F.3d at 157. For example, although Plaintiff could decide how to use funds reserved for promotional events, her managers gave her a strict budget for each event, which she was not permitted to exceed. The record does not indicate that Plaintiff was allowed to negotiate and bind Boehringer to any significant matters, or waive or deviate from Boehringer’s established policies and procedures without its prior approval. Moreover, Plaintiff’s ability to determine how best to engage physicians, develop a rapport with them, and address their questions and concerns about a particular product are all skills that Plaintiff developed and honed through Boehringer’s training sessions. And, although Plaintiff determined how best to approach physicians, Boehringer never allowed her to stray outside the core message. Finally, even though Plaintiff had discretion in determining the order in which she would visit physicians, Boehringer determined which physicians she would visit, required her to visit every physician on its list, and mandated how many times she had to visit each physician in a six-month period. If Plaintiff did not visit every physician on the list the specified number of times, she was subject to discipline. In light of all the controls that Boehringer placed upon Plaintiff, the Court finds that Plaintiff did not exercise discretion or independent judgment relating to matters of significance.”
Click Palacios v. Boehringer Ingelheim Pharmaceuticals, Inc. to read the entire Order on Motions for Summary Judgment.
Andrew Frisch, the publisher of the Overtime Law Blog, represents Ms. Palacios. If you are a Pharmaceutical Sales Rep who believes you have been wrongly denied overtime, call Mr. Frisch at (888)OVERTIME or click here to learn about your wage and hour rights today.