The Supreme Court has agreed to hear a case raising the issue of whether pharmaceutical sales representatives (“PSRs”) are exempt from the overtime provisions of the Fair Labor Standards Act (“FLSA”).  The Court of Appeals for the Ninth Circuit, in Smithkline Beecham Corp., held that the PSRs were exempt as outside salesmen, thereby creating a split with the Court of Appeals for the Second Circuit, which had previously held in In re Novartis Wage & Hour Litigation that the outside sales exemption did not apply to PSRs. 

The issue arises because PSRs do not literally sell anything.  Under federal regulations, drug companies are prohibited from selling their prescription drugs directly to patients. Instead, they typically sell their products to distributors or retail pharmacies. The drug companies employ PSRs, who make calls on physicians and provide the physicians with information about the benefits of particular pharmaceuticals and encourage the physicians to prescribe those products.

The Secretary of Labor filed amicus briefs in both cases, but the results of her efforts differed dramatically.  In both cases, she argued that the PSRs were not exempt under the outside sales exemption because they did not make sales.  The Second Circuit, in the Novartis case, held that the Secretary’s interpretation of the outside sales exemption, as espoused in her amicus brief, was entitled to controlling deference.  The Ninth Circuit, however, saw it differently:  “We conclude that we owe no deference to the Secretary's current interpretation of the regulations, and, in any event, we respectfully disagree with that interpretation.”

The Ninth Circuit’s refusal to defer to the Secretary’s interpretation was based on the court’s view that in the regulations and in her amicus brief, the Secretary had merely parroted the statutory requirement that a salesperson is someone who makes sales, and had not used her expertise to clarify or explain what was meant by that term.  The court also noted that the Secretary had acquiesced in the sales practices of the pharmaceutical industry for over 70 years.

The Ninth Circuit examined the nature of the heavily-regulated pharmaceutical industry and concluded, “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.”

Interestingly enough, SmithKline agreed that the Supreme Court should review the Ninth Circuit’s decision, even though it had prevailed in that court, in the interest of resolving the conflict among the circuits.  Of course, SmithKline will urge that the Ninth Circuit, rather than the Second Circuit, got it right, both in terms of the deference owed to the Secretary of Labor and the applicability of the outside sales exemption.