Christopher v. SmithKline Beecham Corp. (11-204)

Oral argument: April 16, 2012

Appealed from: United States Court of Appeals for the Ninth Circuit (Feb. 14, 2011)

The Fair Labor Standards Act of 1938 (“FLSA”) requires employers to pay employees one-and-a-half times their normal wages for any time worked over forty hours in a given week, but exempts “outside salesmen” from this overtime pay requirement. Respondent GlaxoSmithKline (“GSK”) refused to pay overtime to petitioners Michael Christopher and Frank Buchanan, whom it employed as pharmaceutical sales representatives, because it considered them to be “outside salesmen.” Christopher and Buchanan sued, arguing that they were not “outside salesmen” under the Secretary of Labor’s interpretation. The Supreme Court will determine whether that interpretation is entitled to deference and whether Christopher and Buchanan are subject to the FLSA’s outside salesman exemption.

Questions presented

The questions presented are: (1) Whether deference is owed to the Secretary of Labor’s interpretation of the FLSA’s outside sales exemption and related regulations; and (2) Whether that exemption applies to pharmaceutical sales representatives.

Issue

Should a court provide deference to the Secretary’s interpretation of the FLSA and hold that pharmaceutical sales representatives are outside salesmen, thereby exempt from the required time-and-a-half overtime wages?

Facts

Congress enacted the FLSA in response to inequitable depression-era working conditions. See 29 U.S.C. § 202(a). The FLSA instituted a mandatory overtime pay provision, which requires that employers compensate employees one-and-a-half times their normal wages for each hour worked over forty hours per week. See id. at § 207(a)(1). However, reasoning that white-collar salesman paid by commission were not subject to the same financial pressures as other workers, the Act’s outside sales exemption excepts from the overtime requirements “any employee employed ... in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary ...).” See id. at § 213(a)(1). In 1940, the Department of Labor (“DOL”) promulgated rules defining sales to “include the transfer of title to tangible property” and to “include[] any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” See 29 C.F.R. § 541.501. The DOL also defined an outside salesman as one who “mak[es] sales . . . away from the employer’s place or places of business.” See id.

In 2009, the DOL filed an amicus brief in a Second Circuit case, arguing that the outside salesman exemption did not apply to pharmaceutical sales representatives because those representatives were legally barred from entering into sales defined as “transfer[]s of title to tangible property.” See In Re Novartis Wage and Hour Litigation, 611 F.3d 141, 151 (2d Cir. 2009). The Second Circuit agreed with the DOL and held that the outside salesman exemption does not apply to pharmaceutical representatives; therefore, the court ruled that employers must pay these representatives time-and-a-half wages for every hour worked over forty hours in a given week. See id. at 153.

Respondent GSK employed Christopher and Buchanan as pharmaceutical sales representatives until 2008. See Christopher v. SmithKline Beecham Corp., 635 F.3d 383, 388 (9th Cir. 2011). In the course of their duties, Christopher and Buchanan worked more than forty hours per week and appealed to GSK (then called Smithkline Beecham Corporation) for overtime pay. See id. When GSK refused, they Christopher sued under the FLSA. See id. The U.S. District Court for the District of Arizona granted summary judgment to GSK on grounds that pharmaceutical sales representatives fit within the terms and the spirit of the outside salesman exemption. See Christopher and Buchanan moved for reconsideration based on the district court’s alleged failure to consider the Secretary of Labor’s amicus brief, which argued that pharmaceutical sales representatives do not fall within the ambit of the outside salesman exemption. See id.The district court rejected the plaintiffs’ motion, holding that the Secretary’s interpretation of the exemption was not entitled to deference under either Chevron U.S.A. Inc. v. National Resources Defense Council, Inc. or Auer v. Robbins. See 635 F.3d at 388–89. The Ninth Circuit affirmed, and held that the Secretary’s interpretation was not even entitled to persuasive weight under Skidmore v. Swift & Co. See id. at 400. This holding created a split with the Second Circuit’s holding in Novartis. Christopher and Buchanan petitioned for certiorari, which the Supreme Court granted.

Discussion

The main issues in this case are whether the Secretary of Labor’s interpretation of the FLSA’s outside salesman exemption should be given deference and whether, as a matter of policy, pharmaceutical sales representatives should be included in the exemption. Christopher and Buchanan argue that the Secretary’s interpretation deserves deference because, otherwise, unelected courts will be encroaching on the democratic judgments of legislatures and agencies. See Brief for Petitioners, Michael Christopher and Frank Buchanan at 40–41. They further assert that classifying pharmaceutical sales representatives as outside salesman would create an unworkable definition and lead to more litigation. See at 39. GSK counters that allowing agencies free reign to interpret their own regulations through amicus briefs would allow agencies to avoid democratic controls. See Brief for Respondent, GlaxoSmithKline LLC at 51. GSK also argues that classifying pharmaceutical sales representatives as outside salesman comports with the FLSA’s purpose and history—to protect vulnerable workers. See at 40.

Should Pharmaceutical Sales Representatives be Classified as Outside Salesmen?

Christopher and Buchanan assert that defining “sale” formally, as a “transfer of title,” comports with the broad jurisdiction of the DOL. See Brief for Petitioners at 38. They contend that giving “sale” a more flexible and amorphous definition would make the DOL’s mission to oversee thousands of different U.S. industries more difficult. See They argue that the advantage of a bright line rule centered on the transfer of title is that employers and employees in all industries can rely on such a clear rule to “negotiate an appropriate wage and workweek.” See at 38–39. A group of medical professionals, arguing as amici curiae, assert that pharmaceutical sales representatives should not be grouped with other “outside salesmen” because the relationship between a pharmaceutical sales representative and a doctor is unique as it is one of “education and information,” rather than one of sales. See Brief of Amicus Curiae Medical Professionals in support of Petitioners at 16–17.

GSK counters that rigidly defining sale to require a transfer of title would create inconsistencies both across and within various industries. See Brief for Respondent at 35–36. GSK notes that if such a rigid rule were put in place, a medical salesman who sells non-prescription medical devices, like tongue depressors and bandages, would be treated differently than a medical salesman who sells prescription medical devices simply based on the kinds of devices each sells. See Moreover, GSK argues, pharmaceutical sales representatives fall squarely within the kind of employees that Congress intended for the outside salesman exemption to cover. See at 29–30. GSK contends that like other outside salesmen, pharmaceutical sales representatives “receive[] commission[] as extra compensation” and can earn money based on the effort they put into the job. See at 29. Thus, according to GSK, to exclude pharmaceutical sales representatives from the outside salesman provision would distort the exemption’s purpose. See at 29–30.

What Deference is Owed to the Secretary of Labor’s Interpretation of the Outside Salesman Exemption?

Christopher and Buchanan argue that the DOL is more democratic than an unelected group of judges, as the DOL is appointed by Congress and is accountable to the public in notice-and-comment rulemaking. See Brief for Petitioners at 41. Thus, according to them, allowing courts to ignore the Secretary of Labor’s interpretation of the outside salesman exemption would be to allow undemocratic courts to circumvent the democratic process. See They contend that allowing judges to override agency decisions may even cause agencies to view their responsibilities as less important. See The National Employment Lawyers Association and National Employment Law Project (“NELA”) assert that judicial intervention into the Secretary’s duties might “upset deliberate legislative compromises that are an important part of FLSA history.” See Brief of Amici Curiae NELA in Support of Petitioners at 23.

While Supreme Court precedent provides that courts should defer to agencies’ interpretations of their own regulations, GSK asserts that this deference should not extend to agency-authored amicus briefs. See Brief for Respondent at 51. GSK argues that affording deference to such briefs undermines principles of administrative law, such as “notice and opportunity for comment, public and political accountability, and respect for the separation of powers.” See at 51–52. Specifically, GSK notes that affording deference to amicus briefs gives agencies an incentive to circumvent democratic rule making procedures by drafting open-ended rules through notice-and-comment and then crafting controlling interpretations of these rules in amicus briefs, free from any democratic constraints. See at 52–53. Finally, GSK argues that providing deference in this way can lead to unfettered agency discretion because it allows agencies to both promulgate and interpret rules without meaningful review from outside bodies. See at 55–56.

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Analysis

The FLSA broadly mandates that employers pay overtime to employees that work more than forty hours in a workweek, see 29 U.S.C. § 207(a), but exempts certain types of employees from the overtime pay requirement, including those in the category of “outside salesman,” see id. at § 213(a)(1). The Secretary of Labor, as the FLSA requires, is responsible for issuing regulations defining “outside salesman.” See The DOL’s regulations specify that outside salesmen are those employees whose “primary duty” is to make sales. See 29 C.F.R. § 541.500(a)(1)(i). Christopher and Buchanan, pharmaceutical representatives for GSK, contend that they do not fall under the Secretary’s definition for “outside salesman” and, therefore, GSK violated the FLSA by not paying them for their overtime work. See Brief for Petitioners at 15. In contrast, GSK argues that pharmaceutical representatives are “outside salesmen” as defined by the DOL regulations and are not entitled to overtime pay. See Brief for Respondent at 27–28.

Are Pharmaceutical Representatives Exempt “Outside Salesmen”?

GSK argues that pharmaceutical representatives are “outside salesmen” falling within the FLSA’s overtime pay exemption. See Brief for Respondent at 27–28. GSK asserts that pharmaceutical representatives are “outside” because they engage in work that is primarily away from the employer’s place of business. See id. at 24. GSK contends that pharmaceutical representatives’ primary responsibilities include those of any salesmen—to make sales pitches, meet with physician-buyers, and obtain commitment for future orders. See id. at 25–26. GSK argues that the FLSA does not require that outside salesmen engage in sales with a transfer of title, as an example included in the FLSA “sales” definition demonstrates. See id. at 33. GSK asserts that it is improper for Christopher and Buchanan to rely on any definition of “sales” other than that included in the FLSA because the FLSA provides its own statutory definition. See id. at 35. GSK maintains that the FLSA’s main purpose was to promote fair pay for lower-paid workers, and that it is consistent with this purpose to define pharmaceutical representatives as exempt “outside salesmen” because such representatives are generally well paid, and Congress did not intend to protect this type of employee. See id. at 28–29.

Christopher and Buchanan argue that pharmaceutical representatives are not “outside salesmen” because they do not engage in direct sales, but instead in promotional work that supports other employees’ direct sales. See Brief for Petitioners at 16. They contend that pharmaceutical representatives cannot be “outside salesmen” because they do not actually arrange for the transfer of title of GSK’s product. See id. at 19. Furthermore, Christopher and Buchanan assert that Supreme Court precedent supports that pharmaceutical representatives are “detailers” engaged in promotional work, not salesmen engaged in sales. See id. at 21–22 (citing Sorrell v. IMS Health, Inc.). Christopher and Buchanan argue that the Ninth Circuit incorrectly adopted a broad definition of “sales” that included the pharmaceutical representatives’ work, without considering that the DOL regulations differentiate between “making sales” and “promotional work.” See id. at 23–24. They further assert that DOL regulations must be interpreted to narrowly limit the overtime exemption because Congress did not intend to exempt a large class of employees from overtime pay. See id. at 22.

Should the Court Defer to the Secretary of Labor’s Regulations and Amicus Briefs?

GSK argues that the Secretary’s “sales” definition, as provided in both regulations and agency amicus briefs, is not entitled to deference and therefore is not controlling. See Brief for Respondent at 44. Specifically, GSK asserts that the DOL “sales” definition, as put forth in the DOL amicus brief filed in the Second Circuit, is new and inconsistent with the agency’s own regulations. See at 45. GSK contends that the DOL’s recent change in policy, now holding that an employee only engages in “sales” if a transfer of title occurs, requires “considerably less deference” because it does not comply with either the FLSA’s language or previous DOL regulations. See GSK argues that while the DOL is entitled to alter its policies, it may not do so without demonstrating awareness that is changing its policies. See id. at 45–46. Ultimately, GSK contends that it is inappropriate to give deference to an agency interpretation presented in amicus briefs, as this would violate the Administrative Procedure Act and run contrary to Supreme Court precedent regarding how agencies may create regulations. See id. at 51–52.

Christopher and Buchanan argue that the DOL regulations dictating that pharmaceutical representatives are not “outside salesmen” must control. See Brief for Petitioners at 31–32. They contend that the DOL’s interpretation of its Secretary’s regulations must stand unless the interpretation is “plainly erroneous.” See id. at 34. They assert that it is a valid and reasonable interpretation of the Secretary’s regulations for the DOL to distinguish promotional work from sales by the transfer of title. See id. Further, they argue that the Ninth Circuit should have deferred to the DOL’s interpretation of its regulations because that interpretation is overwhelmingly persuasive. See id. at 44. In refuting GSK’s argument that the DOL should not develop agency interpretation through uninvited amicus briefs, Christopher and Buchanan contend that the FLSA permits employers to rely on any written administrative ruling, interpretation, or order, including agency amicus briefs. See id. at 51.

Conclusion

Congress enacted the FLSA to provide overtime to nonexempt employees who work more than forty hours in a week. GSK argues that its pharmaceutical representatives are “outside salesmen,” a class of workers that are exempt from the FLSA’s overtime pay requirement, because the representatives engage in the promotion of its product and the actual “sale” does not require that transfer of title occur. In contrast, Christopher and Buchanan argue that pharmaceutical representatives are not exempt “outside salesmen,” and therefore are entitled to overtime pay under the FLSA. This case may affect what types of employees are considered “salesmen” under the FLSA, the rights of such employees to receive overtime pay, and the amount of deference afforded to an agency’s interpretation.

Authors

Prepared by: Alison Carrizales and Tom Schultz

Edited by: Jacqueline Bendert

Acknowledgments

The authors would like to thank former Supreme Court Reporter of Decisions Frank Wagner for his assistance in editing this preview.

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