Federal Overtime Pay Ruling

In a case decided on June 18, 2012, the United States Supreme Court ruled that sales representatives of pharmaceutical firms are exempt from the overtime requirements of the federal Fair Labor Standards Act (“FLSA”).  Under the FLSA, employers are required to pay most employees 1-1/2 times their regular rate when they work more than 40 hours in a workweek.   But there are established exemptions for employees acting in administrative, executive, professional, computer programming and analysis, or outside sales capacities.

In Christopher v. SmithKline Beecham, the plaintiff sales representatives argued that SmithKline improperly classified them as outside salespeople and deprived them of overtime pay.  The U.S. Department of Labor filed a brief in support of the plaintiffs, arguing that they were not engaged in sales because they were only soliciting non-binding commitments from doctors to prescribe the drugs to their patients, who then purchased the drugs themselves.  The Supreme Court decided that “sales” under the law could include transactions that did not involve an actual transfer of legal ownership.  The Court also felt that it was essentially unfair of the Labor Department to change its longstanding interpretation of the law in a supporting brief.

Although the facts here were somewhat unique, businesses treating employees as exempt from overtime are reminded of the need to look carefully at job responsibilities to make sure they fall within the desired exemption.  Among other things, companies need to be aware that just because an employee is paid a salary rather than on an hourly basis is not the determining factor in this analysis.

Contact Lloyd Sanders or Jack Merrill with questions about employment classifications.