Sixth Circuit Reverses Employer’s Summary Judgment on FLSA Claim Brought by Class of Potentially Misclassified Outside Salespersons

Yesterday, the Sixth Circuit issued an important FLSA decision concerning the enforceability of employee waivers of FLSA class actions and the applicability of the outside sales exemption in the FLSA.   Killion v. KeHe Distributors LLC, Nos. 13-3357/4340 (6^th Cir. 7-30-14).  In that case, the plaintiffs held “sales representative” jobs with a food distributor, worked mostly in grocery and big box stores stocking and re-ordering products, and were laid off.  Some of the plaintiffs signed separation agreements waiving their rights to bring a class action or other claim.  They sued, claiming that that they had typically worked 60 hours/week but were not paid overtime wages.   Instead, they were paid commissions.   The Sixth Circuit reversed the denial of class certification to the plaintiffs who had signed the class action waiver on the grounds that such waivers were unenforceable for FLSA claims.  In addition, the Court found that a jury could find that they were not exempt outside sales representatives because evidence existed which showed that the plaintiffs (i) were inventory controllers that did not make sales, (ii) spent most of their time stocking and cleaning shelves, (iii) were compensated mostly (68%) for stocking shelves and store maintenance, and (iv) conducted promotional activities to increase the sales of account managers, not their own sales.   

The employer had argued that the class action waiver should be as enforceable as arbitration agreements in other FLSA claims.  However, the Sixth Circuit disagreed on the basis that there is a strong public policy in favor of arbitration agreements, which does not exist in a simple class action waiver.  Accordingly, the Court distinguished decisions from other circuits enforcing similar waivers on the grounds that those cases also involved arbitration agreements.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney.

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.

NOTICE: This summary is designed merely to inform and alert you of recent legal developments. It does not constitute legal advice and does not apply to any particular situation because different facts could lead to different results. Information here can change or be amended without notice. Readers should not act upon this information without legal advice. If you have any questions about anything you have read, you should consult with or retain an employment attorney