Outside Sales Pay Exemption Clarified

Impact: The Supreme Court has taken a broad approach to interpreting the overtime exemptions, which may allow for more employees to be classified as exempt.

The U.S. Supreme Court held that pharmaceutical sales representatives, or “detailers” as they are called, are exempt from the overtime requirements of the Fair Labor Standards Act, or FLSA, as outside salespeople.

Detailers for GlaxoSmithKline brought action against their employer in the U.S. District Court for the District of Arizona alleging violations of the FLSA’s overtime provisions. The court granted summary judgment in the employer’s favor. The employees appealed, and the U.S. Court of Appeals for the 9th Circuit affirmed it, holding that the detailers were exempt from the overtime provisions.

The U.S. Supreme Court held that the statute’s emphasis on “capacity” favors a “functional, rather than formal, inquiry,” and, as such, needs to be examined in the context of the employee’s particular industry. Moreover, the FLSA’s definition of “sale” provides that ” ‘[s]ale’ or ‘sell’ includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.”

The court also emphasized that detailers “bear all the external indicia of salesmen.” They are trained to close each sales call by seeking a physician’s nonbinding commitment; they work on the road, away from their employer’s home office; they work with minimal supervision; and they receive incentive compensation based on sales within a particular detailer’s territory.

Finally, the court concluded that its interpretation comports with the FLSA’s purpose for exempting outside salesmen. Outside salesmen are typically compensated well above the minimum wage. Furthermore, suddenly forcing pharmaceutical companies to pay overtime to detailers would “significantly chang[e] the nature of that position.” Christopher v. SmithKline Beecham Corp. No. 11-204 (June 18, 2012).

James E. Hall, Mark T. Kobata and Marty Denis are partners in the law firm of Barlow, Kobata & Denis, with offices in Los Angeles and Chicago. Comment below or email editors@workforce.com.

Workforce Management, August 2012, p. 12 — Subscribe Now!