The Supreme Court's web site confirms that the nation's highest court has granted the petition for certiorari filed by the pharmaceutical sales representative (PSR) plaintiffs in Christopher et al. v. SmithKline Beecham Corporation. The Court will now review the Ninth Circuit's ruling in Christopher that SmithKline properly classifies its pharmaceutical sales representatives as "outside sales" employees, despite the FDA regulations precluding PSRs from receiving money from the medical practitioners they visit. Absent unforeseen delays, the parties (and the industry at large) should expect a ruling prior to end of the Court’s 2011/2012 term.
As the pharmaceutical community eagerly awaits the Supreme Court’s decision whether to grant certiorari in Christopher v. SmithKline Beecham Corp., courts within the Third Circuit (encompassing Pennsylvania, New Jersey and Delaware) continue to conform to the appeals court’s previous holding in Smith v. Johnson & Johnson, 593 F.3d 280 (3d Cir. 2010), that pharmaceutical representatives meet the test for the administrative exemption under federal and Pennsylvania law. See Ibanez v. Abbott Labs., Inc., 2011 U.S. Dist. LEXIS 131945 (E.D. Pa. Nov. 14, 2011).
In Ibanez, as in previous cases such as Smith and Baum v. AstraZeneca LP, 372 Fed. Appx. 246 (3d Cir. 2010), the court determined that “plaintiff regularly exercised discretion and independent judgment in all aspects of his job, including pre-call planning, interactions with physicians, territory business planning, and the planning of events.” rejected plaintiff’s reliance on U.S. Department of Labor guidance concerning the applicability of the administrative exemption to positions and duties allegedly analogous to the PSR position. Some courts, relying on this guidance, have narrowly interpreted the exemption to apply principally (if not solely) to operational employees such as Human Resources, Accounting or Information Technology. ]
The continuing “wave” of wage-and-hour litigation seeking to find PSR’s non-exempt presents an important case study for employers in other industries, where assumptions about the exempt status of particular classifications of employees persist. A preventive audit is often the only way to detect potential wage-and-hour exposures (individual and/or class-wide) and make changes before they are identified via costly litigation. As to PSR’s, the issue only will be resolved if the Supreme Court grants certiorari and provides guidance to the industry as to the applicability of both the administrative and outside sales exemptions.
As often discussed in this space and elsewhere, Courts continue to widely differ in their analysis as to whether the administrative and/or outside sales exemptions are applicable to pharmaceutical sales representatives. Now, the Supreme Court will have another opportunity to weigh in on the applicability of the outside sales exemption to such employees, as the plaintiffs in Christopher v. SmithKline Beecham Corp., 635 F.3d 383 (9th Cir. 2011) have petitioned the Court to review the Ninth Circuit’s decision finding them to be properly classified as outside salespersons. Christopher, et al. v. SmithKline, Supreme Court Docket No. 11-204.
While acceptance of the petition and a ruling from the high court would hopefully provide welcome clarity in this area, even a resolution by the Supreme Court of the circuit split between Christopher and the Second Circuit’s decision in In Re Novartis will not resolve all outstanding issues relating to the classification of these employees, as Courts continue to differ on the applicability of the administrative exemption.
On February 14, 2010, the United States Court of Appeals for the Ninth Circuit held GlaxoSmithKline's pharmaceutical sales representatives (“PSRs”) are exempt from the FLSA's minimum wage and overtime requirements under the outside sales exemption, rejecting a contrary decision from the Second Circuit, and an amicus brief filed by the United States Department of Labor. Christopher v. SmithKline Beecham Corp., 2011 U.S. App. LEXIS 2834 (9th Cir. Feb. 14, 2011). The Ninth Circuit refused to defer to the DOL, finding the amicus brief was merely a new “reinterpretation” of the exemption by the DOL, set forth only in its amicus brief, not in any regulations, and constituted a break from pharmaceutical industry standards regarding what constitutes sales, which the DOL had not objected to since the FLSA’s inception decades ago. According to the Ninth Circuit, “[i]n this industry, [a] ‘sale’ is the exchange of non-binding commitments between the PSR and physician at the end of a successful call. . . . [F]or all practical purposes, this is a sale.” Id. at * 35 (emphasis added).
Based on this Circuit split and the existing split between the Second and Third Circuits over the application of the administrative exemption to PSRs (not at issue in the Ninth Circuit decision), the Supreme Court may be more likely to weigh in on this issue.
We will continue to monitor developments surrounding this evolving issue.
In the latest installment of the ongoing litigation over whether pharmaceutical sales representatives are exempt from overtime under the FLSA (see earlier post here), a district court in Indiana declined to reconsider its decision holding that PSRs do qualify for the outside sales exemption. SeeSchaefer-Larose v. Eli Lilly & Co., S..D. Ind. Docket No. 07-CV-1133, Order dated Sept. 29, 2010.
The Court observed that “a substantial amount of activity has occurred in courts throughout the country with regard to the question of whether pharmaceutical sales representatives are exempt under the FLSA [since the court issued its decision holding that outside sales exemption applies].” Order at 2; Schaefer-Larose v. Eli Lilly & Co., 663 F. Supp. 2d 674 (S.D. Ind. 2009). While acknowledging that some of these rulings “do not correspond with our analysis” – including the Second Circuit’s recent Novartis decision – absent guidance from the relevant appeals court (the Seventh Circuit), the Court stated that its decision on the issue “cannot be a swinging pendulum, vacillating back and forth as each new ruling addressing this question is handed down by some court or another across the nation.” Id. at 3.
The resolution of whether PSRs qualify for the outside sales or administrative exemption likely will ultimately need to be resolved by the United States Supreme Court.
In a much-awaited decision, earlier this week the U.S. Court of Appeals for the Second Circuit reversed a New York District Court and held that pharmaceutical sales representatives are not exempt outside sales or administrative employees. In re Novartis Wage & Hour Litig., No. 09-0437-cv, 2010 U.S. App. LEXIS 13708 (2d Cir. July 6, 2010). The Court concurred with and deferred to the position of the U.S. Secretary of Labor, who appeared as amicus curiae or “friend of the court” at the appellate stage, and stated that “the Secretary of Labor’s interpretations of her regulations are entitled to “‘controlling’ deference unless those interpretations are ‘plainly erroneous or inconsistent with the regulation.’” In essence, the Second Circuit held that the representatives do not meet the outside sales exemption because “where [an] employee promotes a pharmaceutical product to a physician but can transfer to the physician nothing more than free samples and cannot lawfully transfer ownership of any quantity of the drug in exchange for anything of value, cannot lawfully take an order for its purchase, and cannot lawfully even obtain from the physician a binding commitment to prescribe it[,] . . . it is not plainly erroneous to conclude that the employee has not in any sense, within the meaning of the statute or the regulations, made a sale.” In a similarly narrow interpretation of the FLSA, the Second Circuit, again deferring to the Secretary’s view, held that the representatives’ duties do not demonstrate the necessary exercise of independent discretion and judgment as to matters of significance for application of the administrative exemption, and performance of those duties required only skills gained through training
A petition for review likely will follow and the scope of the exemptions may need to be resolved by the U.S. Supreme Court, in light of conflicting authority including the Third Circuit’s contrary decision applying the administrative exemption to pharmaceutical sales representatives. SeeSmith v. Johnson & Johnson, 593 F.3d 280 (3d Cir. 2010)
For a more detailed analysis of the Second Circuit’s decision, click here.
[UPDATE]. On July 19, 2010, another district court within the Third Circuit relied on the Johnson & Johnson decision to hold that pharmaceutical sales representatives qualify for the administrative exemption. Jackson v. Alpharma, 2010 U.S. Dist. LEXIS 72435 (D.N.J. July 19, 2010). The ever-growing and sharply divided body of authority regarding applicability of the administrative exemption in the pharmaceutical industry make In Re Novartis a candidate for Supreme Court review. We will continue to monitor developments in the case.
Paul DeCamp is a Partner in the Washington, D.C. Region office of Jackson Lewis LLP and leader of the firm’s Wage and Hour Practice Group. He is a nationally recognized expert in wage and hour law. He joined the firm...More...
