Source: s3://data.kl3m.ai/documents/govinfo/USCOURTS/USCOURTS-azd-2_08-cv-01498/USCOURTS-azd-2_08-cv-01498-0/pdf.json

Nature of Suit Code: 710
Nature of Suit: Fair Labor Standards Act
Cause of Action: 29:201 Fair Labor Standards Act

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WO

IN THE UNITED STATES DISTRICT COURT

FOR THE DISTRICT OF ARIZONA

Michael Shane Christopher; Frank

Buchanan, 

Plaintiffs, 

vs.

SmithKlein Beecham Corp., 

Defendant. 

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No. CV-08-1498-PHX-FJM

ORDER

The court has before it plaintiffs’ motion for conditional class certification (doc. 29),

defendant’s response (doc.34), and plaintiffs’ reply (doc. 47). We also have before us

defendant’s motion for summary judgment (doc. 52), plaintiffs’ response and cross motion

for partial summary judgment (doc. 75), defendant’s response and reply (doc. 77), plaintiffs’

reply (doc. 82), and plaintiffs’ motion for leave to file supplemental record in support of

motion for conditional class certification (doc. 83), defendant’s response (doc. 87), and

plaintiffs’ reply (doc. 89). 

Defendant SmithKlein Beecham Corporation d/b/a GlaxoSmithKlein (“GSK”) is in

the business of developing, marketing, and selling pharmaceutical products. Plaintiffs

Michael Shane Christopher and Frank Buchanan worked for GSK as pharmaceutical sales

representatives (“PSR”), and were responsible for marketing and promoting GSK products

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to physicians and encouraging them to prescribe those products to their patients. GSK at one

time maintained as many as 9,000 PSRs to promote their products. PSOF ¶ 59. Plaintiffs

brought this action contending that their jobs regularly required them to work in excess of

forty hours per week and that GSK violated the Fair Labor Standards Act (“FLSA”),

29 U.S.C. § 207, by failing to pay them overtime compensation. 

The FLSA requires employers to pay overtime compensation for hours worked in

excess of forty hours per week unless a FLSA exemption applies. 29 U.S.C. § 207(a)(1).

GSK contends that plaintiffs are not entitled to overtime pay because they fall within either

the “outside sales” or the “administrative employee” exemptions. Id. at § 213(a)(1). Due to

the remedial nature of the overtime pay requirement, “FLSA exemptions are to be narrowly

construed against employers and are to be withheld except as to persons plainly and

unmistakenly within their terms and spirit.” Bothell v. Phase Metrics, Inc., 299 F.3d 1120,

1125 (9th Cir. 2002) (quotation omitted). The employer bears the burden of showing that

an exemption applies. Id.

The FLSA’s overtime compensation requirement does not apply to “any employee

employed . . . in the capacity of outside salesman.” 29 U.S.C. § 213(a)(1). An employee is

exempt as an outside salesperson if (1) the employee’s “primary duty” is “making sales

within the meaning of [29 U.S.C. § 203(k)]” or “obtaining orders or contracts,” and (2) “is

customarily and regularly engaged away from the employer’s place or places of business in

performing such primary duty.” 29 C.F.R. § 541.500(a). The parties do not dispute that

plaintiffs customarily and regularly performed their duties away from GSK’s offices. They

spent the majority of their working time in the field calling on physicians or at home

preparing for their calls. Therefore, the only issue in dispute is whether plaintiffs’ primary

duty as a pharmaceutical sales representative was “making sales” within the meaning of §

203(k). 

The FLSA defines “sale” as “any sale, exchange, contract to sell, consignment for

sale, shipment for sale, or other disposition.” 29 U.S.C. § 203(k). The regulations provide

that “[s]ales within the meaning of section 3(k) of the Act include the transfer of title to

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tangible property, and in certain cases, of tangible and valuable evidences of intangible

property.” 29 C.F.R. § 541.501(b). In promulgating the 2004 regulations, the Department

of Labor explained that “[a]n employer cannot meet [the outside sales exemption] unless it

demonstrates objectively that the employee, in some sense, has made sales.” Defining and

Delimiting the Exemptions for Executive, Administrative, Professional, Outside Sales and

Computer Employees, 69 Fed. Reg. 22122, 22162 (Apr. 23, 2004) (“Comments to 2004 Final

Rule”) (emphasis added). Employees “make sales” if they “obtain a commitment to buy

from the customer and are credited with the sale.” Id. (quotation omitted). “In borderline

cases the test is whether the person is actually engaged in activities directed toward the

consummation of his own sales, at least to the extent of obtaining a commitment to buy from

the person to whom he is selling. If his efforts are directed toward stimulating the sales of

his company generally rather than the consummation of his own specific sales his activities

are not exempt.” Id. at 22162-63. Therefore, the Department of Labor contemplates that

while a sale or order may be processed in different ways, the employee only makes “sales”

if his job involves obtaining commitments for purchases that are creditable to his own efforts.

There is no requirement that these must be binding commitments.

Here, it was plaintiffs’ responsibility as PSRs to call on physicians and discuss the

features, benefits, and risks of GSK products. PSOF ¶¶ 15, 22. Their primary objective was

convincing physicians to prescribe GSK products to their patients. DSOF ¶¶ 104-06. GSK

furnishes PSRs with detailed reports on physicians, including their prescribing habits, their

market share, and volume of prescriptions filled. PSOF ¶ 120. These reports identify

healthcare professionals who have a higher likelihood of responding to marketing, based in

part on how they have historically prescribed and responded to promotional activities. PSOF

¶ 116. The PSRs’ efforts are focused on the top 250 physicians in their territory who

prescribe for a particular disease state. PSOF ¶ 120. 

All PSRs receive extensive specialized training upon hire and throughout the course

of their careers with GSK. DSOF ¶¶ 5, 7. PSRs are trained on GSK’s program entitled

“Winning Practices,” in which they learn to drive sales for each promoted product,

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collaborate to deliver seamless selling and service, develop expert product knowledge, gain

insight into customers, organize sales calls to maximize selling time and results, sell through

customer-focused dialogue, and get the best possible commitment on every call. DSOF ¶¶

8, 9. Each PSR is expected to “close” each physician visit, ideally by requesting a

commitment from the physician to prescribe the GSK drug to patients. DSOF ¶ 126. 

A PSR’s compensation generally consists of approximately 75% base salary and 25%

incentive compensation. PCSOF ¶ 10. While it is not possible to directly link a PSR’s

marketing activities to a particular patient filling a prescription, PSOF ¶ 55, the incentive

compensation is based, in part, on the number of prescriptions written by physicians in a

PSR’s assigned geographic area. DSOF ¶¶ 11-12. Plaintiffs’ incentive compensation ranged

from 26% to 41% of their total annual compensation between 2004 and 2007. DSOF ¶¶ 64-

66, 138-41.

Despite job descriptions and job duties that incorporate standard sales training and

methodology, plaintiffs contend that they do not fit within the outside sales exemption

because they do not actually execute sales within the meaning of the FLSA. They contend

that as PSRs they do not consummate transactions or take orders as required by the

regulations. While they acknowledge that they may create a demand for GSK products,

Response at 5, they contend this is promotional or educational work, not sales. 

Defendant responds that plaintiffs’ argument ignores the unique nature of “sales” in

the pharmaceutical industry. In the traditional sales model, a salesperson pitches a product

to a buyer, the buyer purchases the product, and the salesperson leaves with cash in hand.

But that model does not fit the pharmaceutical industry. The Food and Drug Administration

heavily regulates the pharmaceutical industry and prohibits pharmaceutical companies from

selling directly to either physicians or patients. Instead, patients must obtain prescriptions

from physicians, and subsequently purchase the prescribed drugs from pharmacies.

However, without a prescription from a physician, there is no sale. GSK argues that in the

pharmaceutical industry the true customer, in other words the individual who generates the

sale, is the physician. Sales volume is directly and exclusively driven by the number of

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prescriptions written by physicians, and plaintiffs’ job was to encourage such prescriptions.

Therefore, according to GSK, PSRs make sales in the manner that sales are made in the

pharmaceutical industry. See DSOF ¶¶ 102, 107 (Plaintiff Buchanan concedes that he made

sales in the way that sales are made in the pharmaceutical industry.). 

Plaintiffs disagree, contending that the only “sale” that occurs in the pharmaceutical

industry is from GSK to wholesalers who in turn sell the drugs to pharmacies and hospitals.

But wholesalers, pharmacies, and hospitals purchase their drugs, not because a persuasive

salesperson touts the merit of the product, but because of the number of prescriptions the

wholesalers, pharmacies, and hospitals expect to fill. Ultimately the demand is driven by

prescriptions written by physicians. 

Several courts have considered whether PSRs “make sales” within the meaning of the

outside sales exemption and have reached conflicting conclusions. Some have adopted a

strict construction of the term “sale,” concluding that because PSRs do not directly

consummate actual sales, they do not fit within the exemption. Ruggeri v. Boehringer

Ingelheim Pharm., Inc., 585 F. Supp. 2d 254, 268 (D. Conn. 2008) (“PSRs lack [the]

capacity to sell, and physicians lack [the] capacity to purchase,” in the strictest sense of these

terms, therefore they cannot fit within the outside sales exemption); Smith v. Johnson &

Johnson, No. 06-CV-4787, 2008 WL 5427802 (D.N.J. Dec. 30, 2008) (same). 

Others have concluded that adopting such a “constricted reading of the FLSA ignores

the Act’s spirit, purpose, and goals.” In re Novartis Wage & Hour Litigation, 593 F. Supp.

2d 637, 648 (S.D.N.Y. 2009), see also Schaefer-LaRose v. Eli Lilly & Co., No. 07-CV-1133,

2009 WL 3242111 (Sept. 29, 2009); Harris v. Auxilium Pharm., Inc., No. 07-CV-3938, 2009

WL 3157275 (S.D. Tex. Sept. 28, 2009). These courts recognize that in all relevant respects

a PSR’s encounter with a physician is the functional equivalent of an outside sale. PSRs

“make sales by obtaining commitments to prescribe . . . drugs from physicians. They are

credited with those sales and compensated accordingly by means of incentive payments.”

In re Novartis, 593 F. Supp. 2d at 653. As such, PSRs “qualify as exempt outside

salespersons.” Id.

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There is nothing striking about the characteristics of a traditional “sale” that explains

the exemption for outside sales work. In fact, the FLSA and the Department of Labor define

the term “sale” somewhat loosely. The Act defines a sale as “any sale, exchange, contract

to sell, consignment for sale, shipment for sale, or other disposition.” 29 U.S.C. § 203(k).

The Department of Labor is of the view that the exemption requires a sale “in some sense,”

Comments to 2004 Final Rule, 69 Fed. Reg. at 22162. In both cases, the definitions provide

for an interpretation of “sale” beyond a constricted, traditional sense of the word. 

Shortly after the enactment of the FLSA, the Tenth Circuit recognized the rationale

underlying the outside sales exemption:

Such salesm[a]n, to a great extent, works individually. There are no

restrictions respecting the time he shall work and he can earn as much or as

little, within the range of his ability, as his ambition dictates. In lieu of

overtime, he ordinarily receives commissions as extra compensation. He

works away from his employer’s place of business, is not subject to the

personal supervision of his employer, and his employer has no way of knowing

the number of hours he works per day. To apply hourly standards primarily

devised for an employee on a fixed hourly wage is incompatible with the

individual character of the work of an outside salesman.

Jewel Tea Co. v. Williams, 118 F.2d 202, 207-08 (10th Cir. 1941). Outside salespeople are

exempt from the overtime compensation requirement because of the distinct characteristics

of their jobs—incentive pay based on individual effort; flexible, unregulated work hours; and

minimal supervision “mak[ing] adherence to an hours-based compensation scheme

impractical.” See In re Novartis, 593 F. Supp. 2d at 649. 

The Department of Labor more recently recognized that the legislative history of the

§ 213(a)(1) exemptions “were premised on the belief that the workers exempted typically

earned salaries well above the minimum wage, and they were presumed to enjoy other

compensatory privileges such as above average fringe benefits and better opportunities for

advancement, setting them apart from the nonexempt workers entitled to overtime pay.”

Comments to 2004 Final Rule, 69 Fed. Reg. at 22124. Moreover, the kind of work these

employees performed was “difficult to standardize to any time frame and could not be easily

spread to other workers after 40 hours in a week, making compliance with the overtime

provisions difficult.” Id. 

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Each of these factors directly correlates with a PSR’s work. PSRs are not hourly

workers, but instead earn salaries well above minimum wage—up to $100,000 a year.

Bonuses give them an incentive to increase their effort and work longer hours. They receive

bonuses in lieu of overtime. Their work is largely unsupervised. They do not punch a clock

or otherwise verify their hours, making compliance with overtime provisions unrealistic. “To

apply hourly standards primarily devised for an employee on a fixed hourly wage is

incompatible with the individual character of the work of an outside salesman.” Jewel Tea

Co., 118 F.2d at 208. 

The statute and supporting regulations defining the outside sales exemption were

adopted in 1938, long before the development of the pharmaceutical sales industry, and few

clarifications or changes have been enacted since then. The statute and regulations are

intended to broadly address a multiplicity of industries found in the national economy and

accordingly provide flexibility in the definition of a “sale.” See 29 U.S.C. § 203(k) (a sale

includes “any other disposition”). Even the Department of Labor recognizes this flexibility

by suggesting that there must be a sale “in some sense,” such as “obtaining a commitment

to buy.” Comments to 2004 Final Rule, 69 Fed. Reg. at 22162-63. The pharmaceutical

industry is unique in that federal regulations prohibit a direct sale to an end-user, thereby

shifting the focus of sales efforts from the consumer to the physician—the catalyst behind

any pharmaceutical sale. A PSR’s ultimate goal is to close an encounter with a physician by

obtaining a non-binding commitment from the physician to prescribe the PSR’s assigned

product. In this highly regulated industry, that is the most a PSR can achieve. His

compensation is designed to encourage him to work during his lunch hour and into the

evening, hosting meals, meetings, and presentations, all for the purpose of increasing the

sales of his assigned products in his territory, with a payoff in the form of bonuses. In all

regards, a PSR engages in what is the functional equivalent of an outside salesperson and to

hold otherwise is to ignore reality in favor of form over substance. We decline to adopt a

hyper-technical construction of the regulations that runs counter to the purpose of the Act.

Instead, because plaintiffs plainly and unmistakably fit within the terms and spirit of the

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1

Because we conclude that plaintiffs qualify as exempt employees under the FLSA’s

outside sales exemption, we need not consider whether they also fit within the administrative

employee exemption. Moreover, our summary judgment ruling in favor of GSK obviates the

need to consider plaintiffs’ motion for conditional class certification.

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exemption, we conclude that they are exempt employees under the outside sales exemption.1

Pharmaceutical sales representatives are salespeople.

Therefore, IT IS ORDERED GRANTING GSK’s motion for summary judgment

(doc. 52), and DENYING plaintiffs’ cross motion for summary judgment (doc. 75). 

IT IS FURTHER ORDERED DENYING plaintiffs’ motion for conditional class

certification as moot (doc. 29), and DENYING plaintiffs’ motion to supplement the record

as moot (doc. 83). 

The clerk shall enter final judgment.

DATED this 20th day of November, 2009.

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