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Tuesday, February 15, 2011

Christopher v. SmithKline Beecham: 9th Circuit Upholds Order that Pharma Sales Reps Are Exempt

In Christopher v. SmithKline Beecham Corp., --- F.3d ----, 2011 WL 489708 (9th Cir. 2/14/11), the Ninth Circuit has upheld a district court's finding that pharmaceutical sales representatives (PSRs) are exempt employees under the Fair Labor Standards Act (FLSA).

The plaintiffs sued GlaxoSmithKline ("Glaxo") for overtime under the FLSA. The parties cross-moved for summary judgment, and plaintiffs moved to certify a conditional class. Glaxo contended that plaintiffs were exempt under the “outside salesman” provision in FLSA or, alternatively, under the “administrative” exemption. 29 U.S.C. § 213(a)(1). The trial court (D. AZ, Judge Martone) granted summary judgment for Glaxo, finding that the PSRs were outside salesmen.

The Court of Appeal affirmed, breaking with the DOL and the Second District. In re Novartis Wage & Hour Litig., 611 F.3d 141 (2d Cir. 2010), blogged here.

After reviewing the outside sales exemption, the Court held that it owes "no deference to the Secretary's current interpretation of the regulations" (slip op. at 7) because the regulations themselves do nothing more than repeat the terms of the FLSA. Slip op. at 10. "Furthermore ... deference is not warranted because the Secretary's position is both plainly erroneous and inconsistent with her own regulations and practices, as demonstrated in the analysis that follows." Ibid.

The Court then held that the PSRs are exempt outside salespeople:
Plaintiffs' contention that they do not “sell” to doctors ignores the structure and realities of the heavily regulated pharmaceutical industry. It is undisputed that federal law prohibits pharmaceutical manufacturers from directly selling prescription medications to patients. Plaintiffs suggest that despite being hired for their sales experience, being trained in sales methods, encouraging physicians to prescribe their products, and receiving commission-based compensation tied to sales, their job cannot “in some sense” be called selling. This view ignores the reality of the nature of the work of detailers, as it has been carried out for decades. Plaintiffs' argument also fails to account for the fact that the relevant “purchasers” in the pharmaceutical industry, and the appropriate foci of our inquiry, are not the end-users of the drug but, rather, the prescribing physicians whom they importune frequently. Unlike conventional retail sales, the patient is not at liberty to choose personally which prescription pharmaceutical he desires. As such, he cannot be fairly characterized as the “buyer.” Instead, it is the patient's physician, who is vested with both a moral and legal duty to prescribe medication appropriately, who selects the medication and is the appropriate focus of our “sell/buy” inquiry. In this industry, the “sale” is the exchange of non-binding commitments between the PSR and physician at the end of a successful call. Through such commitments, the manufacturer will provide an effective product and the doctor will appropriately prescribe; for all practical purposes, this is a sale. Because pharmaceutical manufacturers appreciate who the “real” buyer is, they have structured their 90,000-person sales force and their marketing tactics to accommodate this unique environment.
Slip op. at 11. The Court had this to say about the DOL's current position on PSRs:
We also find that the Secretary's acquiescence in the sales practices of the drug industry for over seventy years further buttresses our decision. The outside sales exemption has existed since 1938. Detail men have practiced their craft over that same period. Generally, they have been considered salespeople. Until the Secretary's appearance in Novartis, the DOL did not challenge the conventional wisdom that detailing is the functional equivalent of selling pharmaceutical products.
Slip op. at 15. The Court concluded:
For the past seventy-plus years, selling in the pharmaceutical industry has followed this process. PSRs are driven by their own ambition and rewarded with commissions when their efforts generate new sales. They receive their commissions in lieu of overtime and enjoy a largely autonomous work-life outside of an office. The pharmaceutical industry's representatives-detail men and women-share many more similarities than differences with their colleagues in other sales fields, and we hold that they are exempt from the FLSA overtime-pay requirement.
Slip op. at 16.

I find this opinion to be a mixed bag. On the one hand, the Court seems to be saying that PSRs don't do sales the way people normally think of sales, i.e., they don't seel anything to anyone, but they're the closest thing the industry has to salespeople, so they fall under the exemption. On the other hand, I can understand the Court's reluctance to follow the DOL's current position. In that sense, the opinion reminds me of Murphy v. Kenneth Cole Productions, in which the California Supreme Court refused to follow the DLSE's then newly adopted position that missed meal period pay was a penalty, rather than a wage.

The opinion is here.

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