Alerts
Alerts
April 5, 2011

Recent Court of Appeals decision highlights
the need to properly define the role of
sales representatives

The Ninth Circuit, in Christopher v. Smithkline Beecham Corporation, 2011 WL 489708 (9th Cir., Feb. 14, 2011), found on February 14, 2011 that pharmaceutical sales representatives were “outside sales representatives” under the Fair Labor Standards Act (FLSA) of 1938, 20 U.S.C. § 201 et seq, exempting them from overtime pay. Pharmaceutical Sales Representatives (PSRs) are prohibited from making actual sales of drugs to physicians or patients, and are instead used to promote drugs so that physicians will prescribe them to be purchased from a pharmacy. The PSRs claimed that they were entitled to overtime pay under the FLSA for the time they spent promoting the defendants products outside of normal business hours, arguing that because they did not make sales themselves, they were not outside sales representatives.

The Court, however, reasoned that even though the PSRs did not make actual sales, they were outside sales representatives under the FLSA. The highly regulated nature of the industry prevented the PSRs from making actual sales, but the nature of the work was such that the PSRs were essentially getting commitments from physicians to prescribe drugs, which was analogous to a sale. They were, therefore, exempt from overtime pay under the FLSA as an outside sales representative.

This case extends beyond the pharmaceutical industry and highlights the need for any company that utilizes sales representatives to have up-to-date and enforceable agreements that properly define the sales representative’s role. This decision also highlights a conflict among the federal courts on this issue, making it vitally important that a company using sales representatives understands the law of the territory in which its representatives operate. In addition to the application of federal labor laws, nearly every state has its own specific statute that governs sales representative relationships. Failure to follow these statutes can have serious and costly consequences.

If you utilize sales representatives, ask yourself the following:

  1. Have I defined when my sales representative’s compensation is earned and will be paid and does that comply with applicable law?
  2. Have I provided for the payment of earned compensation after termination of the sales representative and does that comply with applicable law?
  3. Will I be responsible for paying my sales representative for sales made after they are terminated?
  4. Do my sales representative agreements prevent my sales representatives from stealing my clients?
  5. Are my sales representatives employees or independent contractors, and have I complied with the applicable laws regarding both?
  6. Do my sales representative agreements protect my business, assets, clients, and livelihood?

The attorneys at McDonald Hopkins have extensive experience advising clients on sales representative issues. If you are unsure about the answer to any of the above questions, please contact:

James J. Giszczak

248-220-1354

jgiszczak@mcdonaldhopkins.com

Timothy J. Lowe

248-220-1359

tlowe@mcdonaldhopkins.com

Labor and Employment

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Carl J. Grassi, President
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