The United Stated Supreme Court rarely reviews cases that involve wage and hour issues; however, last week the Court issued an important decision that addressed the criteria for satisfying the outside sales exemption to the Fair Labor Standards Act (FLSA). The Court held that pharmaceutical sales representatives (PSRs) working for GlaxoSmithKline were primarily engaged in “sales” and therefore exempt from FLSA overtime compensation requirements.
The dispute began when former GlaxoSmithKline PSRs brought an action against the pharmaceutical giant seeking back pay for unpaid overtime wages. The PSRs were paid a salary while working for GlaxoSmithKline and were not paid time-and-a-half overtime wages when they worked more than 40 hours week. The PSRs claimed they regularly worked 50-60 hours per week.
In response, GlaxoSmithKline claimed the PSRs were not entitled to overtime wages because they were exempt from FLSA overtime requirements under the “outside sales” exemption. That exemption provides that employees are not entitled to overtime pay if certain criteria are met. One requirement is that the employee be primarily involved in “making sales”. (For general information on the Outside Sales exemption, including additional exemption criteria, click here to view the Department of Labor’s Fact Sheet on the Outside Sales exemption.)
The PSRs argued that they were not actually involved in “making sales,” and instead only engaged in “detailing,” or providing product details to medical professionals who ultimately prescribed the product to the end user. The PSRs described their activities as promotional work that was incidental to sales made by others.
The Supreme Court disagreed. Although the PSRs did not transfer actual title of the product to the consumer, they did obtain nonbinding commitments from physicians to prescribe the products. This was the most PSRs could do under federal law to ensure a sale in the end. The PSRs also had the characteristics of traditional salespersons. They were hired based on sales experience, worked away from the office with minimal supervision, and were rewarded for their efforts with substantial salaries (upwards of $75,000).
This case is important for two reasons. First and foremost, it is a favorable decision for employers, particularly those in the pharmaceutical industry, because it expands the class of employees who qualify for the outside sales exemption. Outside salespeople are generally on the road and out of the office for the majority of the day, so tracking their hours is particularly difficult. Therefore, ensuring these folks are not entitled overtime wages is critical.
Second, the case serves as a reminder that even employees making a hefty salary can claim they are entitled to overtime wages. Although the GlaxoSmithKline decision was ultimately a win for employers, the case went all the way to the U.S. Supreme Court, costing the employer a great deal of headache, not to mention significant legal fees. If you are concerned that some of your salaried employees might be entitled to overtime wages, now may be a good time to conduct a wage/hour audit in your organization.