The United States Supreme Court recently held that pharmaceutical sales representatives are exempt outside salesmen under the Fair Labor Standards Act (FLSA) in Christopher v. SmithKline Beecham Corp. d/b/a GlaxoSmithKline.
To qualify for the outside salesman exemption under the FLSA, the following requirements must be satisfied:
- The employee’s primary duty must either be “making sales” within the meaning of the FLSA or “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
- The employee must be customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.
29 C.F.R. § 541.500. An employee does not need to be paid on a salary basis to qualify as an exempt outside salesman.
In Christopher, the Supreme Court held the FLSA required “a functional, rather than a formal, inquiry, one that views an employee’s responsibilities in the context of the particular industry in which the employee works.” The Court concluded that pharmaceutical sales representatives “make sales” even they do not sell prescription drugs directly to consumers because “[o]btaining a nonbinding commitment from a physician to prescribe one of [the employer’s] drugs is the most that petitioners were able to do to ensure the eventual disposition of the products that [the employer] sells.”
The Court rejected the argument that pharmaceutical sales representatives were “more naturally classified as nonexempt promotional employees who merely stimulate sales made by others than as exempt outside salesmen.” The Court explained that “[t]his formalistic argument is inconsistent with the realistic approach that the outside salesman exemption is meant to reflect.”
Takeaway: The Supreme Court’s decision in Christopher is a good decision for employers. The “functional inquiry” utilized in the decision construes the outside salesman exemption broadly and in light of the particular industry in which the employee works.