The Employer's Legal Resource: Supreme Court Holds that Pharmaceutical Reps are Exempt

07.01.12

For decades, the Fair Labor Standards Act (FLSA) has exempted from its overtime pay requirements those persons employed "in the capacity of outside salesman." For decades, pharmaceutical companies have compensated their sales reps as exempt from the FLSA's overtime provisions on the belief they were outside sales reps.

Over the past couple of years, there has been much debate about (and conflicting court opinions on) whether pharmaceutical sales reps are indeed outside salesman such that they are exempt from overtime compensation. In 2009, the Department of Labor (DOL) took the position that pharmaceutical sales reps are not exempt (therefore should be paid overtime compensation). The DOL's position was that a "sale" required a consummated transaction conveying title. This is not the business model for pharmaceutical companies. The sales reps aren't going to doctors' offices and closing a sale of prescription drugs. They are selling the doctors on the products in hopes the doctor will prescribe the drugs to patients.

Cases were filed and the courts differed on whether these employees were exempt. Well, now we know. They are.

On June 18, the United States Supreme Court ruled that pharmaceutical sales reps are exempt from the FLSA's overtime provisions. In addition to its usual analysis of the wording of the law, the Supreme Court gave much attention to the fact that, for years, pharmaceutical companies openly treated their reps as exempt outside salesmen with no pronouncements or actions by the DOL to stop such a practice. The Supreme Court noted it was unfair to change the game at this time and retroactively impose liability on these employers.

Now, don't get your hopes up that this "unfair surprise" argument will work for you. It reads more like a slap on the DOL's wrist than an outline of an argument that will work for employers universally. The takeaway is that the DOL should be consistent in its interpretations and steer away from any approach that looks more like a "gotcha".

By Kristen L. Brightmire, kbrightmire@dsda.com

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Rebecca D. Bullard

Rebecca D. Bullard

Rebecca represents clients primarily in labor and employment
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