Pharmaceutical reps within outside sales exemption

Pharmaceutical sales reps (PSRs) were exempt from FLSA overtime pay requirements under the outside salesperson exemption, the Ninth Circuit held, in direct contrast to the Second Circuit’s holding in the 2010 In Re Novartis ruling. The appeals court affirmed the district court’s grant of summary judgment to the pharmaceutical company, refusing to give deference to a Department of Labor (DOL) amicus brief submitted in Novartis, which took the position that the outside salesperson exemption did not apply to PSRs. Acknowledging the Second Circuit’s contrary conclusion, the appeals court disagreed that it owed Auer deference to the DOL’s position. Auer deference is afforded where the language of the regulation clarifying a statute is ambiguous. Here, the relevant question is whether the plaintiffs fell under the outside sales exemption to the FLSA. The statute itself refers to Secretary of Labor regulations to clarify “outside salesman. However, an agency is not entitled to deference where it simply parrots statutory language, the Ninth Circuit stated, and in its effort to define “sales” in its regulations clarifying outside salesperson, the agency did just that, the appeals court found. Specifically, instead of setting forth a particular test for ‘sales” or otherwise instructing employers on indicia of sale, Sec. 541.501(b) provides an open-ended definition of sales, and then cross references back to Sec. 3(k) of the FLSA itself. Drawing on the Supreme Court’s decision in Gonzalez v Oregon, the appeals court concluded that, because the regulation did nothing but restate the FLSA, no Auer deference was due. Even if Auer applied, however, the appeals court wrote, deference to the DOL’s position would be unwarranted because it was “plainly erroneous” and “inconsistent with its own regulations.” The reality of the pharmaceutical industry and the paradigm in which “Rx only” products are distributed demonstrate that the employee is involved in a sale, the court opined. Although the DOL took the position that a “sale” for purposes of the outside sales exemption required “a consummated transaction directly involving the employee for whom the exemption is sought,” the appeals court agreed with the district court in adopting the employer’s rationale for using the phrase “other disposition” from the Sec. 3(k) definition of “sale.” In the pharmaceutical industry, federal law prohibits manufacturers from selling directly to patients; instead, PSRs--who are trained in sales methods and receive commission-based compensation tied to sales--can at best encourage physicians to prescribe products. The “sale” is the physician’s nonbinding agreement to prescribe the product. Recognition that the sale occurs between the doctor and the PSR is evidenced by the fact that the industry employs some 90,000 people in its sales force, the Ninth Circuit opined. Furthermore, PRSs are compensated by increased commission when a doctor increases her use of a drug in a PSR’s bag, the court noted. The PSRs were much like the salesperson in Jewel Tea Co v Williams, a Tenth Circuit case that the Secretary an both parties had relied on as precedent. In that case, employees made no immediate deliveries, but instead took orders for future deliveries. There, the salespeople were required to perform clerical tasks at night, and were paid a base salary plus a commission under certain circumstances. The appeals court stated that “[e]ven though PSRs lack some hallmarks of the classic salesmen, the great bulk of their activities are the same, as is the overarching purpose of obtaining a commitment to purchase (prescribe) something.” Furthermore, the primary duty of the PSR was not promotional in nature, the appeals court concluded, but instead, promotion was a preliminary step toward the end goal of having a particular doctor commit to prescribing more of a particular medicine. The plaintiffs had no interest in generally promoting sales, the court concluded, but instead, tailored their sales toward a specific set of physicians in a geographic area. Finally, for the past 70 years, the Secretary of Labor herself had, prior to her presence in Novartis, acquiesced to the practice that detailing (a term used for the work of PSRs) was considered sales, the appeals court observed. “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 court concluded. (Christopher v SmithKline Beecham Corp, 9thCir, 60 LC 35,873.)