Christopher v. SmithKline Beecham Corp.
567 U.S. (2012)
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Rule of Law:
Under the Fair Labor Standards Act, an employee whose primary duty is to obtain a nonbinding commitment from a third party to purchase a product is an exempt "outside salesman" if that commitment is the most that can be done to effectuate a sale in a highly regulated industry.
Facts:
- SmithKline Beecham Corporation develops, manufactures, and sells prescription drugs.
- Federal law prohibits the sale of prescription drugs to consumers without a physician's prescription.
- SmithKline hired petitioners Michael Christopher and Frank Buchanan as pharmaceutical sales representatives, also known as 'detailers'.
- Petitioners' primary objective was to call on physicians in their assigned territories to persuade them to prescribe SmithKline's drugs.
- To achieve this, petitioners sought to obtain a nonbinding commitment from physicians to prescribe the drugs in appropriate cases.
- Petitioners worked approximately 40 hours per week visiting physicians and an additional 10 to 20 hours per week on other work-related tasks.
- Their compensation consisted of a base salary plus incentive pay based on the sales volume of their assigned drugs within their territories.
- SmithKline did not pay petitioners overtime compensation for hours worked in excess of 40 per week.
Procedural Posture:
- Petitioners Michael Christopher and Frank Buchanan sued respondent SmithKline Beecham Corporation in the U.S. District Court for the District of Arizona, alleging violations of the FLSA's overtime provisions.
- Respondent moved for summary judgment, arguing petitioners were exempt outside salesmen.
- The District Court granted summary judgment in favor of SmithKline Beecham.
- Petitioners' motion to alter or amend the judgment was denied by the District Court.
- Petitioners, as appellants, appealed to the U.S. Court of Appeals for the Ninth Circuit.
- The Ninth Circuit affirmed the judgment of the District Court in favor of SmithKline Beecham, the appellee.
- The U.S. Supreme Court granted certiorari to resolve a circuit split.
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Issue:
Does the term 'outside salesman' under the Fair Labor Standards Act and its implementing regulations encompass pharmaceutical sales representatives whose primary duty is to obtain nonbinding commitments from physicians to prescribe their employer's drugs?
Opinions:
Majority - Justice Alito
Yes. Pharmaceutical sales representatives who seek nonbinding commitments from physicians to prescribe drugs are exempt 'outside salesmen' under the Fair Labor Standards Act. The Court determined that because federal law prevents pharmaceutical companies from making direct sales to patients, obtaining a physician's nonbinding commitment to prescribe is the functional equivalent of a sale in that industry. The Court declined to give Auer deference to the Department of Labor's (DOL) contrary interpretation, which was advanced for the first time in an amicus brief, because it represented a change in position that would create an 'unfair surprise' and impose massive retroactive liability on an industry that had operated under a consistent practice for decades without any DOL enforcement action. Interpreting the regulations independently, the Court found that the FLSA's broad definition of 'sale,' which includes 'any... other disposition,' should be interpreted functionally based on the specific industry. In the context of pharmaceuticals, where the physician is the gatekeeper, obtaining a commitment to prescribe is the most a representative can do and is tantamount to a sale or 'other disposition.' This conclusion is supported by the fact that the representatives bear all the external indicia of salesmen and that their high compensation and independent work align with the purpose of the outside salesman exemption.
Dissenting - Justice Breyer
No. Pharmaceutical sales representatives are not exempt 'outside salesmen.' The detailers do not make a 'sale' as defined by the statute and regulations. A sale involves a transfer of property or title for a price, which does not occur between the detailer and the physician. The actual sale is made by a pharmacist to a patient at a later time. The 'nonbinding commitment' obtained from a doctor is not a contract to sell or any other form of disposition; it is merely a promise to consider prescribing a drug. The detailers' work is more accurately classified as non-exempt 'promotion work' under the DOL regulations, as their activities are designed to stimulate sales made by 'someone else' (the pharmacist), not to make their own sales. The majority's 'tantamount to a sale' analysis creates a new test not found in the law and wrongly expands the exemption beyond its defined text.
Analysis:
This decision significantly limits the scope of potential overtime liability for the pharmaceutical industry by adopting a functional, industry-specific approach to the definition of 'sale' under the FLSA. The Court's refusal to grant Auer deference to the Department of Labor's litigating position signals a check on agency power, particularly when an agency abruptly reverses a longstanding, non-enforced policy in a way that would create massive retroactive liability. This creates a higher bar for agencies seeking deference for new interpretations, requiring them to provide 'fair warning' to regulated industries rather than announcing new rules through amicus briefs. The case solidifies a realistic, rather than formalistic, approach to classifying employees, focusing on the practical realities of their roles within their industry's specific legal constraints.
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