Source: http://topics.law.cornell.edu/supremecourt/text/11-204
Timestamp: 2013-12-10 13:00:27
Document Index: 51772752

Matched Legal Cases: ['§207', '§213', '§541', '§213', '§203', '§202', '§207', '§213', '§213', '§541', '§203', '§216', '§213', '§541', '§203', '§203', '§203', '§541', '§541', '§213', '§541', '§353', 'art 541', 'art 541', '§6']

CHRISTOPHER v. SMITHKLINE BEECHAM CORP. | Supreme Court | LII / Legal Information Institute
The Fair Labor Standards Act (FLSA) requires employers to pay employees overtime wages, see 29 U. S. C. §207(a), but this requirement does not apply with respect to workers employed “in the capacity of outside salesman,” §213(a)(1). Congress did not elaborate on the meaning of “outside salesman,” but it delegated authority to the Department of Labor (DOL) to issue regulations to define the term. Three of the DOL’s regulations are relevant to this case. First, 29 CFR §541.500 defines “outside salesman” to mean “any employee . . . [w]hose primary duty is . . . making sales within the meaning of [
(a) The DOL filed amicus briefs in the Second Circuit and the Ninth Circuit in which it took the view that “a ‘sale’ for the purposes of the outside sales exemption requires a consummated transaction directly involving the employee for whom the exemption is sought.” Brief for Secretary of Labor as Amicus Curiae in In re Novartis Wage and Hour Litigation, No. 09–0437 (CA2), p. 11. The DOL changed course after the Court granted certiorari in this case, however, and now maintains that “[a]n employee does not make a ‘sale’ . . . unless he actually transfers title to the property at issue.” Brief for United States as Amicus Curiae 12–13. The DOL’s current interpretation of its regulations is not entitled to deference under Auer v. Robbins, 519 U. S. 452. Although Auer ordinarily calls for deference to an agency’s interpretation of its own ambiguous regulation, even when that interpretation is advanced in a legal brief, see, id., at 461–462, this general rule does not apply in all cases. Deference is inappropriate, for example, when the agency’s interpretation is “ ‘plainly erroneous or inconsistent with the regulation,’ ” id., at 461, or when there is reason to suspect that the interpretation “does not reflect the agency’s fair and considered judgment on the matter,” id., at 462. There are strong reasons for withholding Auer deference in this case. Petitioners invoke the DOL’s interpretation to 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. See, e.g., Long Island Care at Home, Ltd. v. Coke, 551 U. S. 158–171. Until 2009, the pharmaceutical industry had little reason to suspect that its longstanding practice of treating detailers as exempt outside salesmen transgressed the FLSA. 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. Whatever the general merits of Auer deference, it is unwarranted here. The DOL’s interpretation should instead be given a measure of deference proportional to its power to persuade. See United States v. Mead Corp., 533 U. S. 218. Pp. 8–14.
(1) The FLSA does not furnish a clear answer to this question, but it provides at least one interpretive clue by exempting anyone “employed . . . in the capacity of [an] outside salesman.” 29 U. S. C. §213(a)(1). The statute’s emphasis on “capacity” counsels in favor of a functional, rather than a formal, inquiry, one that views an employee’s responsibilities in the context of the particular industry in which the employee works. The DOL’s regulations provide additional guidance. Section 541.500 defines an outside salesman as an employee whose primary duty is “making sales” and adopts the statu- tory definition of “sale.” This statutory definition contains at least three important textual clues. First, the definition is introduced with the verb “includes,” which indicates that the examples enumerated in the text are illustrative, not exhaustive. See Burgess v. United States, 553 U. S. 124, n. 3. Second, the list of transactions included in the statutory definition is modified by “any,” which, in the context of §203(k), is best read to mean “ ‘one or some indiscriminately of whatever kind,’ ” United States v. Gonzales, 520 U. S. 1. Third, the definition includes the broad catchall phrase “other disposition.” Under the rule of ejusdem generis, the catchall phrase is most reasonably interpreted as including those arrangements that are tantamount, in a particular industry, to a paradigmatic sale of a commodity. Nothing in the remaining regulations requires a narrower construction. Pp. 16–20.
(2) Given this interpretation of “other disposition,” it follows that petitioners made sales under the FLSA and thus are exempt outside salesmen within the meaning of the DOL’s regulations. Petitioners obtain nonbinding commitments from physicians to prescribe respondent’s drugs. This kind of arrangement, in the unique regula- tory environment within which pharmaceutical companies operate, comfortably falls within the catchall category of “other disposition.” That petitioners bear all of the external indicia of salesmen provides further support for this conclusion. And this holding also comports with the apparent purpose of the FLSA’s exemption. The exemption is premised on the belief that exempt employees normally earn salaries well above the minimum wage and perform a kind of work that is difficult to standardize to a particular time frame and that cannot easily be spread to other workers. Petitioners—each of whom earned an average of more than $70,000 per year and spent 10 to 20 hours outside normal business hours each week performing work related to his assigned portfolio of drugs in his assigned sales territory—are hardly the kind of employees that the FLSA was intended to protect. Pp. 20–22.
Congress enacted the FLSA in 1938 with the goal of “protect[ing] all covered workers from substandard wages and oppressive working hours.” Barrentine v. Arkansas-Best Freight System, Inc., 450 U. S. 728, 739 (1981)
; see also 29 U. S. C. §202(a). Among other requirements, the FLSA obligates employers to compensate employees for hours in excess of 40 per week at a rate of 1½ times the employees’ regular wages. See §207(a). The overtime compensation requirement, however, does not apply with respect to all employees. See §213. As relevant here, the statute exempts workers “employed . . . in the capacity of outside salesman.” §213(a)(1).
§§541.500(a)(1)–(2). The referenced statutory provision, 29 U. S. C. §203(k), states that “ ‘[s]ale’ or ‘sell’ includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” Thus, un- der the general regulation, an outside salesman is any employee whose primary duty is making any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.
In light of this requirement, pharmaceutical companies have long focused their direct marketing efforts, not on the retail pharmacies that dispense prescription drugs, but rather on the medi- cal practitioners who possess the authority to prescribe the drugs in the first place. Pharmaceutical companies promote their prescription drugs to physicians through a process called “detailing,” whereby employees known as “detailers” or “pharmaceutical sales representatives” provide information to physicians about the company’s products in hopes of persuading them to write prescriptions for the products in appropriate cases. See Sorrell v. IMS Health Inc., 564 U. S. ___, ___ (2011) (slip op., at 1–2) (describing the process of “detailing”). The position of “detailer” has existed in the pharmaceutical industry in substantially its current form since at least the 1950’s, and in recent years the industry has employed more than 90,000 detailers nationwide. See 635 F. 3d 383, 387, and n. 5, 396 (CA9 2011).
they were responsible for calling on physicians in an assigned sales territory to discuss the features, benefits, and risks of an assigned portfolio of respondent’s prescription drugs. Petitioners’ primary objective was to obtain a nonbinding commitment
Petitioners brought this action in the United States District Court for the District of Arizona under 29 U. S. C. §216(b). Petitioners alleged that respondent violated the FLSA by failing to compensate them for overtime, and they sought both backpay and liquidated damages as relief. Respondent moved for summary judgment, arguing that petitioners were “employed . . . in the capacity of outside salesman,” §213(a)(1), and therefore were exempt from the FLSA’s overtime compensation requirement.
The Court of Appeals for the Ninth Circuit affirmed. See 635 F. 3d 383. The Court of Appeals agreed that the DOL’s interpretation
was not entitled to controlling deference. See id., at 393–395. It held that, because the commitment that petitioners obtained from physicians was the maximum possible under the rules applicable to the pharmaceutical industry, petitioners made sales within the meaning of the regulations. See id., at 395–397. The court found it significant, moreover, that the DOL had previously interpreted the regulations as requiring only that an employee “ ‘in some sense’ ” make a sale, see id., at 395–396 (emphasis deleted), and had “acquiesce[d] in the sales practices of the drug industry for over seventy years,” id., at 399.
We must determine whether pharmaceutical detailers are outside salesmen as the DOL has defined that term in its regulations. The parties agree that the regulations themselves were validly promulgated and are therefore entitled to deference under Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984)
. But the parties disagree sharply about whether the DOL’s interpretation of the regulations is owed deference under Auer v. Robbins, 519 U. S. 452 (1997)
While the DOL’s ultimate conclusion that detailers are not exempt has remained unchanged since 2009, the same cannot be said of its reasoning. In both the Second Circuit and the Ninth Circuit, the DOL took the view that “a ‘sale’ for the purposes of the outside sales exemption requires a con- summated transaction directly involving the employee for whom the exemption is sought.” Secretary’s Novartis Brief 11; see also Brief for Secretary of Labor as Amicus Curiae in No. 10–15257 (CA9), p. 12. Perhaps because of the nebulous nature of this “consummated transaction” test,
Although Auer ordinarily calls for deference to an agency’s interpretation of its own ambiguous regulation, even when that interpretation is advanced in a legal brief, see Chase Bank USA, N. A. v. McCoy, 562 U. S. ___, ___ (2011) (slip op., at 12); Auer, 519 U. S., at 461–462, this general rule does not apply in all cases. Deference is undoubtedly inappropriate, for example, when the agency’s interpretation is “ ‘plainly erroneous or inconsistent with the regulation.’ ” Id., at 461 (quoting Robertson v. Methow Valley Citizens Council, 490 U. S. 332, 359 (1989)
). And deference is likewise unwarranted when there is reason to suspect that the agency’s interpretation “does not reflect the agency’s fair and considered judgment on the matter in question.” Auer, supra, at 462; see also, e.g., Chase Bank, supra, at ___ (slip op., at 14). This might occur when the agency’s interpretation conflicts with a prior interpretation, see, e.g., Thomas Jefferson Univ. v. Shalala, 512 U. S. 504, 515 (1994)
, or when it appears that the interpretation is nothing more than a “convenient litigating position,” Bowen v. Georgetown Univ. Hospital, 488 U. S. 204, 213 (1988)
In this case, there are strong reasons for withholding the deference that Auer generally requires. Petitioners invoke the DOL’s interpretation of ambiguous regulations to impose potentially massive liability on respondent for conduct that occurred well before that interpretation was announced. To defer to the agency’s interpretation in this circumstance would seriously undermine the principle that agencies should provide regulated parties “fair warning of the conduct [a regulation] prohibits or requires.” Gates & Fox Co. v. Occupational Safety and Health Review Comm’n, 790 F. 2d 154, 156 (CADC 1986) (Scalia, J.).
Indeed, it would result in precisely the kind of “unfair surprise” against which our cases have long warned. See Long Island Care at Home, Ltd. v. Coke, 551 U. S. 158–171 (2007) (deferring to new interpretation that “create[d] no unfair surprise” because agency had pro- ceeded through notice-and-comment rulemaking); Martin v. Occupational Safety and Health Review Comm’n, 499 U. S. 144, 158 (1991)
(identifying “adequacy of notice to regulated parties” as one factor relevant to the reasonableness of the agency’s interpretation); NLRB v. Bell Aerospace Co., 416 U. S. 267, 295 (1974)
We acknowledge that an agency’s enforcement decisions are informed by a host of factors, some bearing no relation to the agency’s views regarding whether a violation has occurred. See, e.g., Heckler v. Chaney, 470 U. S. 821, 831 (1985)
(noting that “an agency decision not to enforce often involves a complicated balancing of a number of factors which are peculiarly within its expertise”). But where, as here, an agency’s announcement of its interpretation is preceded by a very lengthy period of conspicuous inaction, the potential for unfair surprise is acute. As the Seventh Circuit has noted, while it may be “possible for an entire industry to be in violation of the [FLSA] for a long time without the Labor Department noticing,” the “more plausible hypothesis” is that the Department did not think the industry’s practice was un- lawful. Yi v. Sterling Collision Centers, Inc., 480 F. 3d 505, 510–511 (2007). There are now approximately 90,000 pharmaceutical sales representatives; the nature of their work has not materially changed for decades and is well known; these employees are well paid; and like quintessential outside salesmen, they do not punch a clock and often work more than 40 hours per week. Other than acquiescence, no explanation for the DOL’s inaction is plausible.
Accordingly, whatever the general merits of Auer deference, it is unwarranted here. We instead accord the Department’s interpretation a measure of deference proportional to the “ ‘thoroughness evident in its consideration, the validity of its reasoning, its consistency with earlier and later pronouncements, and all those factors which give it power to persuade.’ ” United States v. Mead Corp., 533 U. S. 218, 228 (2001)
This new interpretation is flatly inconsistent with the FLSA, which defines “sale” to mean, inter alia, a “consignment for sale.” A “consignment for sale” does not involve the transfer of title. See, e.g., Sturm v. Boker, 150 U. S. 312, 330 (1893)
The DOL’s regulations provide additional guidance. The general regulation defines an outside salesman as an employee whose primary duty is “making sales,” and it adopts the statutory definition of “sale.” 29 CFR §541.500(a)(1)(i). This definition contains at least three important textual clues. First, the definition is introduced with the verb “includes” instead of “means.” This word choice is significant because it makes clear that the examples enumerated in the text are intended to be illustrative, not exhaustive. See Burgess v. United States, 553 U. S. 124, n. 3 (2008) (explaining that “[a] term whose statutory definition declares what it ‘includes’ is more susceptible to extension of meaning . . . than where . . . the definition declares what a term ‘means’ ” (alteration in original; some internal quotation marks omitted)). Indeed, Congress used the narrower word “means” in other provisions of the FLSA when it wanted to cabin a definition to a specific list of enumerated items. See, e.g., 29 U. S. C. §203(a) (“ ‘Person’ means an individual, partnership, association, corporation, business trust, legal representative, or any organized group of persons” (emphasis added)).
Second, the list of transactions included in the statu- tory definition of sale is modified by the word “any.” We have recognized that the modifier “any” can mean “different things depending upon the setting,” Nixon v. Missouri Municipal League, 541 U. S. 125, 132 (2004)
, but in the context of 29 U. S. C. §203(k), it is best read to mean “ ‘one or some indiscriminately of whatever kind,’ ” United States v. Gonzales, 520 U. S. 1, 5 (1997)
(quoting Webster’s Third New International Dictionary 97 (1976)). That is so because Congress defined “sale” to include both the unmodified word “sale” and transactions that might not be considered sales in a technical sense, including exchanges and consignments for sale.
But the limit the DOL posits, one that would confine the phrase to dispositions involving “contract[s] for the exchange of goods or services in return for value,” see U. S. Brief 20, is much too narrow, as is petitioners’ view that a sale requires a “firm agreement” or “firm commitment” to buy, see Tr. of Oral Arg. 64, 66. These interpretations would defeat Congress’ intent to define “sale” in a broad manner and render the general statutory language meaningless. See United States v. Alpers, 338 U. S. 680, 682 (1950)
As discussed above, the sales regulation instructs that sales within the meaning of 29 U. S. C. §203(k) “include the transfer of title to tangible property,” 29 CFR §541.501(b) (emphasis added), but this regulation in no way limits the broad statutory definition of “sale.” And although the promotion-work regulation distinguishes between promotion work that is incidental to an employee’s own sales and work that is incidental to sales made by someone else, see §541.503(a), this distinction tells us nothing about the meaning of “sale.”
This kind of arrangement, in the unique regulatory environment within which pharmaceutical companies must operate, comfortably falls within the catch- all category of “other disposition.”
This provision also exempts workers “employed in a bona fide executive, administrative, or professional capacity.” 29 U. S. C. §213(a)(1).
The definition also includes any employee “[w]hose primary duty is . . . obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer.” 29 CFR §541.500(a)(1)(ii). That portion of the definition is not at issue in this case.
It is undisputed that petitioners were “customarily and regularly engaged away” from respondent’s place of business in performing their responsibilities.
Congress imposed this requirement in 1951 when it amended the Federal Food, Drug, and Cosmetic Act (FDCA) to provide that drugs that are “not safe for use except under the supervision of a practitioner” may be dispensed “only . . . upon a . . . prescription of a practitioner licensed by law to administer such drug.” Durham-Humphrey Amendment of 1951, ch. 578, 65Stat.
648–649 (codified at 21 U. S. C. §353(b)). As originally enacted in 1938, the FDCA allowed manufacturers to designate certain drugs as prescription only, but “it did not say which drugs were to be sold by prescription or that there were any drugs that could not be sold without a prescription.” Temin, The Origin of Compulsory Drug Prescriptions, 22 J. Law & Econ. 91, 98 (1979). Prior to Congress’ enactment of the FDCA, a prescription was not needed to obtain any drug other than certain narcotics. See id., at 97.
Respondent terminated Christopher’s employment in 2007, and Buchanan left voluntarily the same year to accept a similar position with another pharmaceutical company.
The amount of incentive pay is not formally tied to the number of prescriptions written or commitments obtained, but because retail pharmacies are prohibited from dispensing prescription drugs without a physician’s prescription, retail sales of respondent’s products necessarily reflect the number of prescriptions written.
The DOL invites “interested parties to inform it of private cases involving the misclassification of employees in contravention of the new Part 541 rule” so that it may file amicus briefs “in appropriate cases to share with courts the Department’s view of the proper application of the new Part 541 rule.” See Dept. of Labor, Office of Solicitor, Overtime Security Amicus Program, http://www.dol.gov/sol/541amicus.htm (as visited June 15, 2012, and available in Clerk of Court’s case file).
For example, it is unclear why a physician’s nonbinding commitment to prescribe a drug in an appropriate case cannot qualify as a sale under this test. The broad term “transaction” easily encompasses such a commitment. See Webster’s Third New International Dictionary 2425 (2002) (hereinafter Webster’s Third) (defining “transaction” to mean “a communicative action or activity involving two parties or two things reciprocally affecting or influencing each other”). A “consummated transaction” is simply a transaction that has been fully completed. See id., at 490 (defining “consummate” to mean “to bring to completion”). And a pharmaceutical sales representative who obtains such a commitment is “directly involv[ed]” in this transaction. Thus, once a pharmaceutical sales representative and a physician have fully completed their agreement, it may be said that they have entered into a “consummated transaction.”
When pressed to clarify its position at oral argument, the DOL suggested that a “transfer of possession in contemplation of a transfer of title” might also suffice. Tr. of Oral Arg. 17.
Neither petitioners nor the DOL asks us to accord controlling deference to the “consummated transaction” interpretation the Department advanced in its briefs in the Second Circuit and Ninth Circuit, nor could we given that the Department has now abandoned that interpretation. See Estate of Cowart v. Nicklos Drilling Co., 505 U. S. 469, 480 (1992)
Accord, Phelps Dodge Corp. v. Federal Mine Safety and Health Review Comm’n, 681 F. 2d 1189, 1192 (CA9 1982) (recognizing that “the application of a regulation in a particular situation may be challenged on the ground that it does not give fair warning that the allegedly violative conduct was prohibited”); Kropp Forge Co. v. Secretary of Labor, 657 F. 2d 119, 122 (CA7 1981) (refusing to impose sanctions where standard the regulated party allegedly violated “d[id] not provide ‘fair warning’ of what is required or prohibited”); Dravo Corp. v. Occupational Safety and Health Review Comm’n, 613 F. 2d 1227, 1232–1233 (CA3 1980) (rejecting agency’s expansive interpretation where agency did not “state with ascertainable certainty what is meant by the standards [it] ha[d] promulgated” (internal quotation marks omitted and emphasis deleted)); Diamond Roofing Co. v. Occupational Safety and Health Review Comm’n, 528 F. 2d 645, 649 (CA5 1976) (explaining that “statutes and regulations which allow monetary penalties against those who violate them” must “give an employer fair warning of the conduct [they] prohibi[t] or requir[e]”); 1 R. Pierce, Administrative Law Treatise §6.11, p. 543 (5th ed. 2010) (observing that “[i]n penalty cases, courts will not accord substantial deference to an agency’s interpretation ofan ambiguous rule in circumstances where the rule did not place the individual or firm on notice that the conduct at issue constituted a violation of a rule”).
It appears that the DOL only once directly opined on the exempt status of detailers prior to 2009. In 1945, the Wage and Hour Division issued an opinion letter tentatively concluding that “medical detailists” who performed “work . . . aimed at increasing the use of [their employer’s] product in hospitals and through physicians’ recommendations” qualified as administrative employees. Opinion Letter from Dept. of Labor, Wage and Hour Division (May 19, 1945), 1 CCH Labor Law Service, Federal Wage-Hour Guide ¶33,093. But that letter did not address the outside salesman exemption.
For instance, it “makes the job of a reviewing court much easier, and since it usually produces affirmance of the agency’s view without conflict in the Circuits, it imparts (once the agency has spoken to clarify the regulation) certainty and predictability to the administrative process.” Talk America, Inc. v. Michigan Bell Telephone Co., 564 U. S. ___, ___ (2011) (Scalia, J., concurring) (slip op., at 3).
Given that the FLSA provides its own definition of “sale” that is more expansive than the term’s ordinary meaning, the DOL’s reliance on dictionary definitions of the word “sale” is misplaced. See, e.g., Burgess v. United States, 553 U. S. 124, 130 (2008)
The canon of ejusdem generis “limits general terms [that] follow specific ones to matters similar to those specified.” CSX Transp., Inc. v. Alabama Dept. of Revenue, 562 U. S. ___, ___ (2011) (slip op., at 16) (alteration in original; internal quotation marks omitted).
The dissent’s approach suffers from the same flaw. The dissent contends that, in order to make a sale, an employee must at least obtain a “firm commitment to buy.” Post, at 10 (opinion of Breyer, J.). But when an employee who has extended an offer to sell obtains a “firm commitment to buy,” that transaction amounts to a “contract to sell.” Given that a “contract to sell” already falls within the statutory definition of “sale,” the dissent’s interpretation would strip the catchall phrase of independent meaning.
In the past, we have stated that exemptions to the FLSA must be “narrowly construed against the employers seeking to assert them and their application limited to those [cases] plainly and unmistakably within their terms and spirit.” Arnold v. Ben Kanowsky, Inc., 361 U. S. 388, 392 (1960)
The dissent’s view that pharmaceutical detailers are more naturally characterized as nonexempt promotional employees than as exempt outside salesmen relies heavily on the DOL’s explanation in its 1940 Re-port that “sales promotion men” are not salesmen. See post, at 7; see also 1940 Report 46. There, the Department described a “sales promotion man” as an employee who merely “pav[es] the way for salesmen” and who frequently “deals with retailers who are not customers of his own employer but of his employer’s customer” and is “interested in sales by the retailer, not to the retailer.” 1940 Report 46. The dissent asserts that detailers are analogous to “sales promotion men” because they deal with “individuals, namely doctors, ‘who are not customers’ of their own employer” and “are primarily interested in sales authorized by the doctor, not to the doctor.” Post, at 7. But this comparison is inapt. The equivalent of a “sales promotion man” in the pharmaceutical industry would be an employee who promotes a manufacturer’s products to the retail pharmacies that sell the products after purchasing them from a wholesaler or distributor. Detailers, by contrast, obtain nonbinding commitments from the gatekeepers who must prescribe the product if any sale is to take place at all.
Our point is not, as the dissent suggests, that any employee who does the most that he or she is able to do in a particular position to ensure the eventual sale of a product should qualify as an exempt outside salesman. See post, at 9 (noting that “the ‘most’ a California firm’s marketing employee may be able ‘to do’ to secure orders from New York customers is to post an advertisement on the Internet”). Rather, our point is that, when an entire industry is constrained by law or regulation from selling its products in the ordinary manner, an employee who functions in all relevant respects as an outside salesman should not be excluded from that category based on technicalities.
According to one of respondent’s amici, most pharmaceutical companies “have systems in place to maintain the inventories of wholesalers and retailers of prescription drugs (consisting mainly of periodic restocking pursuant to a general contract), [and] these systems are largely ministerial and require only a few employees to administer them.” Brief for PhRMA as Amicus Curiae 24; see also ibid. (explaining that one of its members employs more than 2,000 pharmaceutical sales representatives but “fewer than ten employees who are responsible for processing orders from retailers and wholesalers, a ratio that is typical of how the industry is structured”).