Divided Supreme Court Upholds Exempt Status of Pharmaceutical Sales Reps

This morning, a divided Supreme Court upheld the outside sales exemption that has traditionally applied to pharmaceutical sales representatives. Christopher v. SmithKline Beecham Corp., No. 11–204 (6-18-12). The pharmaceutical sales reps (aka detailers) focus their sales and promotional efforts on physicians who prescribe medications because the medications cannot be obtained by consumers from pharmacies or pharmaceutical companies without a prescription. Their “primary objective was to obtain a nonbinding commitment from the physician to prescribe those drugs in appropriate cases.” They typically worked 40 hours/week calling on physicians and another 10-20 hours attending special events, reviewing product information, etc. They are typically paid a base salary and incentive pay based on sales in their sales territories. The DOL recently took the position in 2009 that because title to the medications did not transfer from the sales rep to the physician, there was no sale. In other words, the exemption required the consummation of a sale. Therefore, the DOL had argued that the detailers were not entitled to the exemption that applies to outside sales representatives and should be paid overtime for simply providing and promoting information about the medications. However, the Court’s majority concluded that the detailer’s activities constituted sales activity. Moreover, the Court refused to defer to the DOL’s recent interpretation of its regulations as creating “unfair surprise” to an industry practice that had existed for decades. The exemption regulations apply to a variety of activities, including consignment relationships, which do not require the transfer of title. Ultimately, the Court noted that obtaining a nonbinding commitment from a physician to prescribe one of the employer’s drugs is the most that the detailers may legally do to ensure the eventual disposition of the employer’s medical products and constitutes an “other disposition” of the employer’s products for purposes of the outside sales exemption regulation and statute at 29 U. S. C. §203(k). The Court also found it relevant that the detailers were handsomely compensated, obviating a need for overtime wages.

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