Read case 19.2 Michael Shane Christopher v. SmithKline Beecham Corporation 635 F

Question

Read case 19.2 Michael Shane Christopher v. SmithKline Beecham Corporation 635 F. 3d 383; 2011 U. S. App. LEXIS 2834 (9th Circuit).

The issue is whether pharmaceutical sales representatives are exempt from overtime pay.

SMITH, CIRCUIT JUDGE.

Plaintiffs-Appellants Michael Christopher and Frank Buchanan appeal the judgment of the district

court that they are not entitled to overtime pay under the Fair Labor Standards Act of 1938

(FLSA). Plaintiffs were employed as Pharmaceutical Sales Representatives (PSRs) for Defendant-

Appellee SmithKline Beecham Corporation d/b/a GlaxoSmithKline ( Glaxo ). Glaxo classified

Plaintiffs as “outside salesmen”—a legal designation that exempts an employee from the FLSA’s

overtime-pay requirement. Plaintiffs’ suit challenges Glaxo’s classification and seeks back pay.

The district court granted summary judgment to Glaxo. We affirm.

I. Pharmaceutical Sales Representatives

Glaxo is in the business of developing, producing, marketing, and selling pharmaceutical products.

Christopher and Buchanan began working as PSRs for Glaxo in 2003. Glaxo terminated

Christopher in May 2007. Buchanan’s career at Glaxo ended when he accepted a PSR position at

another pharmaceutical company.

PSRs usually work outside of a Glaxo office and spend much of their time traveling to the

offices of, and working with, physicians within their assigned geographic territories. Plaintiffs

visited between eight and ten physicians each day, usually between the hours of 8:30 a.m. and

5:00 p.m. Plaintiffs claim that they worked between ten and twenty hours each week outside of

normal business hours, for which they received no overtime wages. When not making calls on

physicians, Plaintiffs studied Glaxo products and relevant disease states, prepared new presentation

modules, answered phone calls, checked email, generated reports, and attended events on

evenings and weekends.

This litigation commenced in August 2008, when Plaintiffs filed the Complaint challenging

Glaxo’s practice of requiring overtime work without paying additional compensation. The

parties cross-moved for summary judgment, and Plaintiffs moved to certify a conditional class.

Glaxo contended that Plaintiffs were exempt under the “outside salesman” provision in FLSA or,

alternatively, under the “administrative” exemption.

In granting Glaxo’s motion for summary judgment, the district court addressed only the

outside sales exemption and held that PSRs “unmistakably fit within the terms and spirit of the

exemption.” The court observed that PSRs “are not hourly workers, but instead earn salaries well

above minimum wage —up to $100,000 a year,” and that they receive bonuses in lieu of overtime

as “an incentive to increase their efforts.” The district court continued, “A PSR’s ultimate goal is

to close an encounter with a physician by obtaining a non-binding commitment from the physician

to prescribe the PSR’s assigned product. In this highly regulated industry, that is the most a

PSR can achieve.”

To meet those goals and expand employment opportunities across the economy, the FLSA

includes a baseline “overtime payment requirement” that employers must pay employees “a rate

not less than one and one-half times the regular rate at which he is employed” for hours worked

in excess of forty per week. There are numerous exceptions to this general rule. These exemptions

to the overtime-pay requirement vary widely from “white-collar” executive, administrative, and

professional exemptions to those for babysitters. Relevant here is one part of the “white-collar”

exemption for persons employed “in the capacity of outside salesman.” The white-collar exemption

removes from the overtime pay requirement: any employee employed in a bona fide executive,

administrative, or professional capacity . . . or in the capacity of outside salesman (as such

terms are defined and delimited from time to time by regulations of the Secretary [of Labor]). . . .

As the statute indicates, a proper interpretation of the FLSA is necessarily guided by the

regulations issued by the Secretary of Labor—“[t]he FLSA grants the Secretary broad authority

to ‘define and delimit’ the scope of the exemption for executive, administrative, and professional

employees.” Congress did not define the term “outside salesman” or the other white-collar exemptions

in the FLSA. Rather, “[p]ursuant to Congress’s specific grant of rulemaking authority,

the [DOL] has issued implementing regulations, at defining the scope of the section 13(a)(1)

exemptions.” In 2004, the DOL’s Wage and Hour Division promulgated supplemental rules concerning

the outside sales and administrative exemptions (the 2004 Rule). Among other things,

the 2004 Rule explained that “the major substantive provisions of the Part 541 regulations have

remained virtually unchanged for 50 years.”

The Secretary defines an “outside salesman” as any employee:

1. Whose primary duty is: (i) making sales within the meaning of section 3(k) of the Act; or

(ii) obtaining orders or contracts for services or for the use of facilities for which a consideration

will be paid by the client or customer; and

2. Who is primarily and regularly engaged away from the employer’s place or places of business

in performing such primary duty.

An employee’s “primary duty” is “the principal, main, major, or most important duty that

the employee performs.” The outside sales regulation provides: In determining the primary duty

of an outside sales employee, work performed incidental to and in conjunction with the employee’s

own outside sales or solicitations, including incidental deliveries and collections, shall be

regarded as exempt outside sales work. Other work that furthers the employee’s sales efforts alsoshall be regarded as exempt work including, for example, writing sales reports, updating or revisingthe employee’s sales or display catalogue, planning itineraries and attending sales conferences.

The Secretary’s outside sales regulation references provides that “‘[s]ale’ or ‘sell’ includes

any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.”

The Secretary’s regulations provide:

Sales within the meaning of section 3(k) of the Act include the transfer of title to tangible

property, and in certain cases, of tangible and valuable evidences of intangible property. Section

3(k) of the Act states that “sale” or “sell” includes any sale, exchange, contract to sell, consignment

for sale, shipment for sale, or other disposition.

In the regulations, the Secretary draws a distinction between sales work and promoting:

Promotion work is one type of activity often performed by persons who make sales, which

may or may not be exempt outside sales work, depending upon the circumstances under which it is

performed. Promotional work that is actually performed incidental to and in conjunction with an

employee’s own outside sales or solicitations is exempt work. On the other hand, promotional work

that is incidental to sales made, or to be made, by someone else is not exempt outside sales work.

To illustrate the concept of promoting sales, as opposed to selling, the Secretary’s regulations

provides two examples—a manufacturer’s representative and a company representative

who visits chain stores:

(b) A manufacturer’s representative, for example, may perform various types of promotional

activities such as putting up displays and posters, removing damaged or spoiled stock from

the merchant’s shelves or rearranging the merchandise. . . . Promotion activities directed toward

consummation of the employee’s own sales are exempt. Promotional activities designed to stimulate

sales that will be made by someone else are not exempt outside sales work. . . .

(c) Another example is a company representative who visits chain stores, arranges the merchandise

on shelves, replenishes stock by replacing old with new merchandise, sets up displays

and consults with the store manager when inventory runs low, but does not obtain a commitment

for additional purchases. The arrangement of merchandise on the shelves or the replenishing

of stock is not exempt work unless it is incidental to and in conjunction with the employee’s

own outside sales. Because the employee in this instance does not consummate the sale nor direct

efforts toward the consummation of a sale, the work is not exempt outside sales work.

In a FLSA overtime-wage case, the question of how an employee spends his or her workday

is one of fact, while the question of whether his or her activities exclude him or her from the

overtime-pay requirement is one of law.

The employer always has the burden of showing the exemption applies to its employee.

Absent an agency-determined result, it is the province of the court to construe the relevant

statutes and regulations. As noted supra, Plaintiffs argue that by not transferring any product to

physicians, they are not selling pharmaceuticals, but only “promoting” them. Plaintiffs say this distinction

is warranted in light of the rule that the FLSA be “narrowly construed against . . . employers.”

For its part, Glaxo urges us to view “sale” in Section 3(k) in a commonsensical fashion, while

contending that the meaning of “sale” is permissive. Glaxo urges us to adopt the rationale that the

phrase “other disposition” in Section 3(k) ’s definition of “sale” is a broad catch-all category.

Plaintiffs’ contention that they do not “sell” to doctors ignores the structure and realities of

the heavily regulated pharmaceutical industry. It is undisputed that federal law prohibits pharmaceutical

manufacturers from directly selling prescription medications to patients. Plaintiffs

suggest that despite being hired for their sales experience, being trained in sales methods, encouraging

physicians to prescribe their products, and receiving commission-based compensation

tied to sales, their job cannot “in some sense” be called selling. This view ignores the reality of the

nature of the work of detailers, as it has been carried out for decades. Plaintiffs’ argument also

fails to account for the fact that the relevant “purchasers” in the pharmaceutical industry, and

the appropriate foci of our inquiry, are not the end-users of the drug but, rather, the prescribing

physicians whom they importune frequently.

Unlike conventional retail sales, the patient is not at liberty to choose personally which

prescription pharmaceutical he desires. As such, he cannot be fairly characterized as the “buyer.”

Instead, it is patient’s physician, who is vested with both a moral and legal duty to prescribe medication

appropriately, who selects the medication and is the appropriate focus of our “sell/buy”

inquiry. 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. Because pharmaceutical manufacturers appreciate who the “real” buyer is,

they have structured their 90,000-person sales force and their marketing tactics to accommodate

this unique environment.

When a PSR visits a doctor, he or she attempts to obtain the absolute maximum commitment

from his or her “buyer”—a non-binding commitment from the physician to prescribe the

PSR’s assigned product when medically appropriate. In most industries, there are no firm legal

barriers that prohibit the actual physical exchange of the goods offered for sale. Because such

barriers do exist in this industry, the fact that commitments are non-binding is irrelevant; the

record reveals that binding or non-binding, a physician’s commitment to a PSR is nevertheless a

meaningful exchange because pharmaceutical manufacturers value these commitments enough

to reward a PSR with increased commissions when a physician increases his or her use of a drug

in the PSR’s bag.

The Secretary’s distinction between selling and promoting is only meaningful if the employee

does not engage in any activities that constitute “selling” under the Act. This much is seen

from the plain language of the regulations, which gives the example of promotional work as “a

company representative who visits chain stores, arranges the merchandise on shelves, replenishes

stock by replacing old with new merchandise, sets up displays and consults with the store manager

when inventory runs low, but does not obtain a commitment for additional purchases.”

PSRs do far more than collect general data or provide consultations; indeed they ask for, and

sometimes obtain, a commitment by the doctor to prescribe Glaxo drugs, and whether the doctor

keeps that commitment is verified and traced using aggregated pharmacy data Glaxo collects.

For the past seventy-plus years, selling in the pharmaceutical industry has followed this

process. 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 pharmaceutical industry’s representatives—

detail men and women—share many more similarities than differences with their colleagues in

other sales fields, and we hold that they are exempt from the FLSA overtime-pay requirement.

For the foregoing reasons, we AFFIRM the district court’s summary judgment for

Defendant-Appellee SmithKline Beecham Corporation.

Case Commentary

The 9th Circuit ruled that pharmaceutical sales reps are exempt from the FLSA’s requirement for

overtime pay.

Please respond to the following prompts:

1) Are you in agreement with the decision of the court?

2) Why are some occupations exempt from overtime pay?

3) What would be an ethical resolution to this dilemma?

Explanation / Answer

Answer:-

Answer-1:-

Yes, it is agreeable with the decision of court.

Pharmaceutical Sales Representative (PSR) earned salary above minimum wages and receive bonuses as incentive to extra efforts. As per 'The Fair Labor Standards Act' (FLSA) they are exempt employees. Also, PSR enjoys work as per timelines, no travel to office, no work pressure, only 20 hours per week work which all comes under intangible benefits their occupation carries, so this is correct decision. Also, doing extra work of calling doctors, making reports etc done by PSR is part of their job profile than how can they ask for overtime wages. Will tree cutter ask for extra wages for sharpening his axe, will it be correct even though he is in hourly wages whereas PSR profile is not in hourly wages.

Answer-2:-

Some occupation should be exempted from overtime pay as they are not of low paid wages. As they not involve more physical work more than forty hours per week that impact health and puts life in fatal condition.

Answer-3:-

First of all there is no dilemma.

The ethical resolution position need not required to be arrived at as the PSR members trying to raise question are trying to extract more value from organisation by trying to benefit from some gaps in law which they thought as gap. But court made right decision.

The legal action taken by PSR is itself unethical hence ethical resolution to this situation (projected as dilemma) need not be arrived at.

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