RESPONDENT: SmithKline Beecham Corporation d/b/a GlaxoSmithKline
LOCATION: GlaxoSmithKline LLC
DOCKET NO.: 11-204
DECIDED BY: Roberts Court (2010-2016)
LOWER COURT: United States Court of Appeals for the Ninth Circuit
CITATION: 567 US (2012)
GRANTED: Nov 28, 2011
ARGUED: Apr 16, 2012
DECIDED: Jun 18, 2012
Malcolm L. Stewart - Deputy Solicitor General, Department of Justice, for the United States as amicus curiae, supporting the petitioners
Paul D. Clement - for the respondent
Thomas C. Goldstein - for the petitioners
Facts of the case
Michael Christopher and Frank Buchanan began working for GlaxoSmithKline LLC ("Glaxo") as pharmaceutical sales representatives ("PSRs") in 2003. Glaxo developed, produced, marketed and sold pharmaceutical products to distributors or retail pharmacies, which subsequently sell those products to consumers when authorized by doctors via prescription. The plaintiffs worked between ten and twenty hours outside of normal business hours each week. PSRs are compensated with a salary and additional incentive-based pay; they are not paid overtime for work done outside of standard business hours.
The Fair Labor Standards Act ("FLSA") was enacted in 1938 to protect the well-being of workers. It imposed a baseline overtime wage on employers for employees who work over forty hours a week. There was an exception to the rule for "outside salesmen", defined by the Secretary of Labor ("Secretary") as an employee whose primary duty is making sales or obtaining contracts and who is primarily and regularly engaged outside of the employer's office. Christopher and Buchanan filed suit in August of 2008, alleging that Glaxo's practice of requiring overtime work without additional pay violated the FLSA's overtime provisions. Both parties filed for summary judgment, and the district court found for Glaxo, agreeing that the plaintiffs fell within the FLSA's "outside salesman" exception.
The U.S. Court of Appeals for the the Ninth Circuit affirmed the district court's ruling. The Secretary filed an amicus curiae brief in support of Christopher and Buchanan's position, arguing that when a PSR promotes pharmaceutical products but does not receive items of value in exchange for those products, he does not fall within the "outside salesman" exception to the FLSA. The court rejected the Secretary's argument, however, reasoning that this definition is a simple parroting of the Congressional statute; such definitions require less deference by courts because they are not interpretive. Instead, the court pointed to Christopher and Buchanan's training in sales --and their experience in sales as a qualification for employment by Glaxo-- as evidence of their status as "outside salesmen." The court noted that the pharmaceutical industry self-regulated marketing to doctors much like other industries self-regulate direct-to-consumer marketing.
1. Must Glaxo and the courts defer to the Secretary of Labor's definition of "outside salesman" under the Fair Labor Standards Act?
2. Does the Secretary of Labor's definition of "outside salesman" apply to pharmaceutical sales representatives?
Media for Christopher v. SmithKlineAudio Transcription for Oral Argument - April 16, 2012 in Christopher v. SmithKline
Audio Transcription for Opinion Announcement - June 18, 2012 in Christopher v. SmithKline
Samuel A. Alito, Jr.:
The second case is Christopher versus SmithKline Beecham Corporation, Number 11-204.
The Fair Labor Standards Act or FLSA requires employers to pay their employees time-and-half-wages for hours worked in excess of 40 per week.
Certain categories of employees, however, are exempt from that requirement, including those “employed in the capacity of outside salesman.”
The nature of the work done by outside salesman would make it very difficult if not entirely impractical to keep track of the hours they work.
They work outside the office most of the time.
They're often on the road and their pay often consists at least in part of commissions based on the number of sales they make.
The statute does not define the term outside salesman, but the Department of Labor has issued regulations that do so and this case concerns the proper interpretation of those regulations.
Respondent is a pharmaceutical company that manufactures and sells prescription drugs.
Under federal law prescription drugs may not be dispensed without a physician's prescription.
Consequently, pharmaceutical companies have long employed pharmaceutical sales representatives to provide information to physicians about their products and to obtain nonbinding commitments from physicians to prescribe those products in appropriate cases.
Petitioners were employed as pharmaceutical sales representatives for roughly four years.
During that time they earned an average annual salary of more than $70,000 and regularly worked more than 40 hours per week.
They brought this suit alleging that their employer's failure to pay them overtime wages violated the FLSA and they sought back pay and liquidated damages.
The District Court held that petitioners were not entitled to overtime wages under FLSA because they were employed in the capacity of outside salesman and the Ninth Circuit affirmed.
We now affirm the Ninth Circuit.
According to the Department of Labor -- according to the Department of Labor's interpretation of its regulations, pharmaceutical sales representatives do not qualify as outside salesman because they do not actually transfer title to any goods.
Although, we ordinarily defer to an agency's interpretation of its own regulations under our decision in Auer versus Robbins, there are strong reasons for not doing so in this case.
Petitioners invoked the Department's interpretation to impose potentially massive liability upon respondent for conduct that occurred well before the Department's interpretation was announced.
Until the Department filed an amicus brief in the similar case in 2009, for many years, it had never indicated that it thought the pharmaceutical industry's long standing practice of treating sales representatives as outside -- as exempt employees violated the FSLA.
To defer in this circumstance would undermine the principle that agencies should provide regulated parties with fair warning of the conduct the regulation prohibits or requires.
The Department's interpretation is also unpersuasive in its own right.
The principle regulation at issue in this case provides that an outside salesman is an employee whose primary duty is making sales and it incorporates by reference to statutory definition of a sale.
That definition provides that a sale includes any sale, exchange, contract to sell, consignment for sale, shipment for sale or other disposition.
The Department's interpretation that a sale requires a transfer of title is flatly inconsistent with this definition since a consignment for sale, one of the transactions specifically included in the definition of sale does not involve a transfer of title.
Applying traditional rules of interpretation we conclude that the catchall phrase “other disposition” in the statutory definition of sale is most reasonably interpreted as including those arrangements that are tantamount in a particular industry to a paradigmatic sale of a commodity.
Obtaining a nonbinding commitment from a physician to prescribe a certain product is tantamount to a sale in the pharmaceutical industry and so, petitioners were employed in the capacity of outside salesman.
The judgment of the Court of Appeals for the Ninth Circuit is affirmed.
Justice Breyer has filed a dissenting opinion in which Justices Ginsburg and Sotomayor and Kagan have joined.