Christopher v. Smithkline Beecham Corp.

Decision Date18 June 2012
Docket NumberNo. 11–204.,11–204.
Citation132 S.Ct. 2156,183 L.Ed.2d 153,567 U.S. 142
Parties Michael Shane CHRISTOPHER, et al., Petitioners v. SMITHKLINE BEECHAM CORPORATION dba GlaxoSmithKline.
CourtU.S. Supreme Court

Thomas C. Goldstein, Washington, DC, for Petitioners.

Malcolm L. Stewart, for the United States as amicus curiae, by special leave of the Court, supporting the Petitioners.

Paul D. Clement, Washington, DC, for Respondent.

Michael R. Pruitt, Otto S. Shill, III, Jackson White, PC, Mesa, AZ, Jeremy Heisler, David W. Sanford, Katherine M. Kimpel, Sanford Wittels & Heisler, LLP, Washington, DC, Thomas C. Goldstein, Counsel of Record, Kevin K. Russell, Amy Howe, Goldstein & Russell, PC, Washington, DC, Eric B. Kingsley, Liane Katzenstein, Kingsley & Kingsley APC, Encino, CA, for Petitioners.

Neal D. Mollen, Paul Hastings LLP, Washington, DC, Mark E. Richardson, GlaxoSmithKline, Research Tri. Pk, NC, Paul D. Clement, Counsel of Record, Jeffrey M. Harris, Stephen V. Potenza, Bancroft PLLC, Washington, DC, for Respondent.

Justice ALITO delivered the opinion of the Court.

The Fair Labor Standards Act (FLSA) imposes minimum wage and maximum hours requirements on employers, see 29 U.S.C. §§ 206 – 207 (2006 ed. and Supp. IV), but those requirements do not apply to workers employed "in the capacity of outside salesman," § 213(a)(1). This case requires us to decide whether the term "outside salesman," as defined by Department of Labor (DOL or Department) regulations, encompasses pharmaceutical sales representatives whose primary duty is to obtain nonbinding commitments from physicians to prescribe their employer's prescription drugs in appropriate cases. We conclude that these employees qualify as "outside salesm[e]n."

I
A

Congress enacted the FLSA in 1938 with the goal of "protect[ing] all covered workers from substandard wages and oppressive working hours." Barrentine v. Arkansas–Best Freight System, Inc., 450 U.S. 728, 739, 101 S.Ct. 1437, 67 L.Ed.2d 641 (1981) ; see also 29 U.S.C. § 202(a). Among other requirements, the FLSA obligates employers to compensate employees for hours in excess of 40 per week at a rate of 1 ½ times the employees' regular wages. See § 207(a). The overtime compensation requirement, however, does not apply with respect to all employees. See § 213. As relevant here, the statute exempts workers "employed ... in the capacity of outside salesman." § 213(a)(1).1

Congress did not define the term "outside salesman," but it delegated authority to the DOL to issue regulations "from time to time" to "defin[e] and delimi[t]" the term. Ibid. The DOL promulgated such regulations in 1938, 1940, and 1949. In 2004, following notice-and-comment procedures, the DOL reissued the regulations with minor amendments. See 69 Fed.Reg. 22122 (2004). The current regulations are nearly identical in substance to the regulations issued in the years immediately following the FLSA's enactment. See 29 C.F.R. §§ 541.500 – 541.504 (2011).

Three of the DOL's regulations are directly relevant to this case: §§ 541.500, 541.501, and 541.503. We refer to these three regulations as the "general regulation," the "sales regulation," and the "promotion-work regulation," respectively.

The general regulation sets out the definition of the statutory term "employee employed in the capacity of outside salesman." It defines the term to mean "any employee ... [w]hose primary duty is ... making sales within the meaning of [ 29 U.S.C. § 203(k) ]"2 and "[w]ho is customarily and regularly engaged away from the employer's place or places of business in performing such primary duty."3 §§ 541.500(a)(1)(2). The referenced statutory provision, 29 U.S.C. § 203(k), states that " [s]ale’ or ‘sell’ includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition." Thus, under the general regulation, an outside salesman is any employee whose primary duty is making any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.

The sales regulation restates the statutory definition of sale discussed above and clarifies that "[s]ales within the meaning of [ 29 U.S.C. § 203(k) ] include the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property." 29 C.F.R. § 541.501(b).

Finally, the promotion-work regulation identifies "[p]romotion work" as "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." § 541.503(a). Promotion work that is "performed incidental to and in conjunction with an employee's own outside sales or solicitations is exempt work," whereas promotion work that is "incidental to sales made, or to be made, by someone else is not exempt outside sales work." Ibid .

Additional guidance concerning the scope of the outside salesman exemption can be gleaned from reports issued in connection with the DOL's promulgation of regulations in 1940 and 1949, and from the preamble to the 2004 regulations. See DOL, Wage and Hour Division, Report and Recommendations of the Presiding Officer at Hearings Preliminary to Redefinition (1940) (hereinafter 1940 Report); DOL, Wage and Hour and Public Contracts Divs., Report and Recommendations on Proposed Revisions of Regulations, Part 541 (1949) (hereinafter 1949 Report); 69 Fed.Reg. 22160–22163 (hereinafter Preamble). Although the DOL has rejected proposals to eliminate or dilute the requirement that outside salesmen make their own sales, the Department has stressed that this requirement is met whenever an employee "in some sense make [s] a sale." 1940 Report 46; see also Preamble 22162 (reiterating that the exemption applies only to an employee who "in some sense, has made sales"). And the DOL has made it clear that "[e]xempt status should not depend" on technicalities, such as "whether it is the sales employee or the customer who types the order into a computer system and hits the return button," Preamble 22163, or whether "the order is filled by [a] jobber rather than directly by [the employee's] own employer," 1949 Report 83.

B

Respondent SmithKline Beecham Corporation is in the business of developing, manufacturing, and selling prescription drugs. The prescription drug industry is subject to extensive federal regulation, including the now-familiar requirement that prescription drugs be dispensed only upon a physician's prescription.4 In light of this requirement, pharmaceutical companies have long focused their direct marketing efforts, not on the retail pharmacies that dispense prescription drugs, but rather on the medical practitioners who possess the authority to prescribe the drugs in the first place. Pharmaceutical companies promote their prescription drugs to physicians through a process called "detailing," whereby employees known as "detailers" or "pharmaceutical sales representatives" provide information to physicians about the company's products in hopes of persuading them to write prescriptions for the products in appropriate cases. See Sorrell v. IMS Health Inc., 564 U.S. ––––, ––––, 131 S.Ct. 2653, 2659–2660, 180 L.Ed.2d 544 (2011) (describing the process of "detailing"). The position of "detailer" has existed in the pharmaceutical industry in substantially its current form since at least the 1950's, and in recent years the industry has employed more than 90,000 detailers nationwide. See 635 F.3d 383, 387, and n. 5, 396 (C.A.9 2011).

Respondent hired petitioners Michael Christopher and Frank Buchanan as pharmaceutical sales representatives in 2003. During the roughly four years when petitioners were employed in that capacity,5 they were responsible for calling on physicians in an assigned sales territory to discuss the features, benefits, and risks of an assigned portfolio of respondent's prescription drugs. Petitioners' primary objective was to obtain a nonbinding commitment6 from the physician to prescribe those drugs in appropriate cases, and the training that petitioners received underscored the importance of that objective.

Petitioners spent about 40 hours each week in the field calling on physicians. These visits occurred during normal business hours, from about 8:30 a.m. to 5 p.m. Outside of normal business hours, petitioners spent an additional 10 to 20 hours each week attending events, reviewing product information, returning phone calls, responding to e-mails, and performing other miscellaneous tasks. Petitioners were not required to punch a clock or report their hours, and they were subject to only minimal supervision.

Petitioners were well compensated for their efforts. On average, Christopher's annual gross pay was just over $72,000, and Buchanan's was just over $76,000.7 Petitioners' gross pay included both a base salary and incentive pay. The amount of petitioners' incentive pay was based on the sales volume or market share of their assigned drugs in their assigned sales territories,8 and this amount was uncapped. Christopher's incentive pay exceeded 30 percent of his gross pay during each of his years of employment; Buchanan's exceeded25 percent. It is undisputed that respondent did not pay petitioners time-and-a-half wages when they worked in excess of 40 hours per week.

C

Petitioners brought this action in the United States District Court for the District of Arizona under 29 U.S.C. § 216(b). Petitioners alleged that respondent violated the FLSA by failing to compensate them for overtime, and they sought both backpay and liquidated damages as relief. Respondent moved for summary judgment, arguing that petitioners were "employed ... in the capacity of outside salesman," § 213(a)(1), and therefore were exempt from the FLSA's overtime compensation requirement.9 The District Court agreed and granted summary judgment to respondent. See App. to Pet. for Cert. 37a–47a.

After the District Court issued its order, petitioner...

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