Pharmaceutical sales representatives qualify as exempt “outside salesmen” under the most reasonable interpretation of Dept. of Labor regulations governing the exemption, the U.S. Supreme Court says, rejecting an appeal by employees seeking overtime pay under the Fair Labor Standards Act, and the DOL’s recent attempt to interpret its regulation to favor the sales representatives.

Pharmaceutical companies have long focused their direct marketing efforts on physicians, who under federal law are the only ones authorized to prescribe regulated medication. Pharmaceutical sales representatives visit physicians and try to persuade them to write prescriptions for the products in appropriate cases, with the primary objective to obtain a nonbinding commitment from physicians to prescribe respondent’s products in appropriate cases. The Court says that the petitioners in the appeal “were well compensated for their efforts, and their gross pay included both a base salary and incentive pay. The amount of incentive pay was determined based on the performance of petitioners’ assigned portfolio of drugs in their assigned sales territories. It is undisputed that petitioners were not paid time-and-a-half wages when they worked more than 40 hours per week.”

Up until the Supreme Court decided to hear the case, “the pharmaceutical industry had little reason to suspect that its longstanding practice of treating detailers as exempt outside salesmen transgressed the FLSA,” the Court says. “The statute and regulations do not provide clear notice. Even more important, despite the industry’s decades-long practice, the DOL never initiated any enforcement actions with respect to detailers or otherwise suggested that it thought the industry was acting unlawfully. The only plausible explanation for the DOL’s inaction is acquiescence.”

Observing that the DOL “changed course” after the Court granted certiorari in the case, the Supreme Court says the current interpretation advanced by the agency “is not entitled to deference” because it “impose potentially massive liability on respondent for conduct that occurred well before the interpretation was announced. To defer to the DOL’s interpretation would result in precisely the kind of “unfair surprise” against which this Court has long warned.” Christopher v. SmithKline Beecham Corp.