Wednesday, June 20, 2012

Common Sense and the FLSA

The Supreme Court this week struck a blow for form over substance in its Fair Labor Standards Act decision here. The language of the decision indicates that the justices took a commonsense type of approach to statutory and regulatory analysis in finding that pharmaceutical sales representatives were indeed exempt employees and not entitled to overtime.  Given that the sales representatives at issue in this case earned in excess of $70,000 a year (which would equate to their normal 40 hour week compensation if they were not exempt employees), the potential overtime damages here would have been substantial.

The decision by the Court is relatively narrow in that it applies to a specific subset of the outside sales job classification. Pharmaceutical sales representatives visit doctors' offices (a totally irrelevant aside here-my doctor friends note that many, if not most, of the sales representatives  they deal with are strikingly attractive young women, leading to this hilarious comment from a Wall Street Journal post about the economic effect of the decision:  "There are going to be a LOT of really, pissed off former college cheerleaders…"), bring them samples of products, take them to dinner, play golf with them, and generally do everything that a normal outside sales representative would do, except close the sale.  Drug companies may not sell directly to physicians via the sales representatives. Instead, the sales representatives get a nonbinding verbal commitment from the physician customer that the physician will prescribe a particular drug or treatment regimen using the drug to their patients.

The sales representatives are compensated in part based on the volume of prescriptions for particular drugs in their territory, and do a considerable amount of work outside normal business hours in the service of promoting their company's products. The sales representatives had been treated as exempt employees under the traditional interpretation of the FLSA until fairly recently.   Then the Department of Labor under the Obama administration changed its position on the exemption issue in a series of friend of the court briefs that it filed supporting plaintiffs in several FLSA cases.

In affirming the Ninth Circuit (something that is noteworthy enough on its own), the Court looked to both the language of the regulations and the statute to determine that the definition of what constituted a “sale” was broad enough to encompass a circumstance where the transaction in question was tantamount to a sale in
every important respect. The irony is even more direct because the Department of Labor has traditionally focused on the actual duties of positions to determine exemption status, something that DOL failed to do here.

What's particularly noteworthy about the Court's decision is the beat down that it administers to the Department of Labor. The Court determined that the DOL's position was flatly inconsistent with both the FLSA's regulatory structure, and the language of the statute itself. I've commented in other posts about the growing dissatisfaction of federal judges with changing executive agency opinions based on whatever administration happens to be in power in Washington. Now the highest court in the country has rebuked the Department of Labor for taking a position that is inconsistent with its long-standing precedent, based on nothing else than a change in administration.

Whether that will matter in the long run remains to be seen. But for right now, there is a solid basis to examine and challenge federal agencies' interpretations of their own regulations and statutes. As employment law practice becomes increasingly statute dependent, this decision might prove to have a much greater reach.

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