By Michael S. Kun, David W. Garland, Douglas Weiner

The Ninth Circuit Court of Appeals has become the latest Circuit Court to weigh in on the subject of whether pharmaceutical sales representatives are covered by the FLSA outside sales exemption.  The result, in Christopher v. SmithKline Beecham, No. 10-15257 (9th Cir. Feb. 14, 2011), is a resounding victory for employers in the pharmaceutical industry.

The plaintiffs and the Secretary of Labor argued, among other things, that sales representatives in fact do not make sales at all, which places them outside the bounds of the outside sales exemption.  Although other courts have agreed, in unmistakably clear language the Ninth Circuit rejected this argument.   The Court explained that the plaintiffs’ contention “that they do not ‘sell’ to doctors “ignores the structure and realities of the heavily regulated pharmaceutical sales industry.”  Although pharmaceutical sales representatives are prohibited by federal law from consummating direct sales to physicians and patients, the Court held that a “common sense” interpretation of the duties of pharmaceutical sales representatives shows that they fall plainly within the terms of the outside sales exemption.

Recognizing the reality of what pharmaceutical sales representatives do, the Court observed that they secure the most that they can achieve under the law from physicians -- a non-binding commitment to prescribe the assigned product when medically appropriate.  This commitment is valued enough that the manufacturer rewards the representative with increased commissions when “a physician increases his or her use of a drug in the PSR’s bag.”

Unlike the Second Circuit in In Re Novartis, which adopted the Secretary of Labor’s position that the outside sales exemption did not apply to pharmaceutical sales representatives, the Ninth Court refused to give deference to the Secretary’s amicus brief in support of the plaintiffs’ claims.  In strong language, the Court questioned why the DOL had changed its position on an exemption that has existed since 1938, noting that until the Secretary’s appearance in In Re Novartis, it had not “challenged the conventional wisdom that detailing is the functional equivalent of selling pharmaceutical products.”  

Although welcome, the Ninth Circuit’s opinion is unlikely to be the final word on this important issue.  Novartis has filed a petition for certiorari to the U.S. Supreme Court.  Given the split among the circuits, it would not be surprising for the Supreme Court to take an interest in this issue.

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