On June 18, 2012, the U.S. Supreme Court sided with pharmaceutical companies in a case that could have cost the industry billions in unpaid overtime wages and related costs. In Christopher v. SmithKline Beecham Corp., No. 11-204 (June 18, 2012), the Court held in a 5-4 decision that pharmaceutical sales representatives (“PSRs”) who promote sales of prescription drugs but do not themselves transact the sales, qualify as “outside salesmen” under the most reasonable interpretation of the Fair Labor Standards Act (“FLSA”) and are thus exempt from FLSA’s overtime wage requirements. In affirming the Ninth Circuit’s holding that the PSRs qualify as “outside salesmen,” the Court resolved a circuit split (overruling a recent Second Circuit decision on the issue) and also rejected the Department of Labor’s (“DOL”) interpretation of the statute.

The Court first addressed the issue of whether the DOL’s position was entitled to deference. The Court found that, although Auer v. Robbins, 519 U.S. 452 (1997), ordinarily calls for deference to an agency’s interpretation (even when advanced in a legal brief), deference in this case was inappropriate where (1) the DOL’s reasoning for its interpretation has been inconsistent, (2) adopting the interpretation would result in “unfair surprise” to the pharmaceutical industry, and (3) the DOL’s interpretation was unpersuasive.

The Court then applied rules of statutory construction to interpret the FLSA and regulations and determined that obtaining a nonbinding commitment from a physician to prescribe drugs was tantamount to a “sale” or “other disposition” under the statute. The Court emphasized that the PSRs exhibited all of the external indicia of salesmen and that the Court’s finding comported with the purposes of the FLSA since PSRs “typically earned salaries well above the minimum wage” and as employees who “earned an average of more than $70,000 per year. [PSRs] are hardly the kind of employees that the FLSA was intended to protect.”

The case split the Court along ideological lines. Justice Alito wrote the majority opinion, joined by Chief Justice Roberts and Justices Scalia, Kennedy and Thomas. Justice Breyer filed a dissenting opinion, in which Justices Ginsberg, Sotomayor and Kagan joined.

Click here to view the full opinion, merits and amicus briefs, and the opinion.

© 2012 Perkins Coie LLP

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