Overtime Update: Big Win For The Pharmaceutical Industry, Increase In FLSA Lawsuits And The Risks Of After-Hours Smartphone Usage By Employees
In a previous edition of the Overtime Update we mentioned that employers (especially those in the pharmaceutical industry) were eagerly awaiting the Supreme Court’s decision in Christopher v. Smithkline Beecham Corp. At issue: whether pharmaceutical sales representatives qualify for the “outside sales” exemption under the Fair Labor Standards Act (“FLSA”). The Supreme Court recently held that the representatives in that case were properly classified as exempt and therefore not entitled to overtime. This installment of Overtime Update analyzes the Court’s decision in Smithkline Beecham, takes a look at the continued increase in wage and hour claims, and provides tips regarding smartphone usage by employees.
Supreme Court: Pharmaceutical Sales Representatives Properly Classified as Exempt
In the past, circuit courts were divided on the issue of whether pharmaceutical sales representatives were properly classified as exempt under the FLSA. These employees typically perform all of the job duties necessary to qualify for the outside sales exemption, except for one small difference – by law, they cannot actually “sell” pharmaceuticals. Instead, doctors write prescriptions that are later filled by a pharmacy. Instead of making a sale, pharmaceutical sales representatives play the role of a promoter by asking physicians to make nonbinding commitments to prescribe a company’s drugs in appropriate cases.
In a 5-4 decision, the Supreme Court ruled in Smithkline Beecham that the sales representatives at issue were properly classified as exempt because the FLSA broadly defines the term “sale” and the representatives “bear all external indicia of salesmen.” Specifically, the Supreme Court noted that these employees work on the road with minimal supervision and receive compensation based on the overall “sales” of their employer’s drugs in a designated sales region.
The decision is significant for two reasons. First, and perhaps most obviously, the decision benefits employers in the pharmaceutical industry by resolving the uncertainty over whether sales representatives are properly classified as exempt under the FLSA. Second, the decision is contrary to the position adopted by the Department of Labor (the “DOL”). In an amicus brief filed in the underlying proceedings in 2009, the DOL, for the first time, took the position that pharmaceutical sales representatives were non-exempt. As the proceedings continued through the Supreme Court, the DOL maintained this position, but changed its reasoning. Generally, courts are required to show deference to an administrative agency’s interpretation of its own rules. However, the Supreme Court declined to show such deference in Smithkline Beecham because it viewed the DOL’s position as an “unfair surprise” to the pharmaceutical industry, which was not provided notice of the DOL’s position prior to 2009. Some experts believe that this ruling may protect employers by allowing courts to ignore the DOL’s interpretation of other wage and hour issues if the DOL changes its position or fails to provide adequate notice to employers of its position.
Stats Show Continued Rise in the Number of Wage and Hour Lawsuits
If you had any doubt as to whether FLSA lawsuits are currently a “hot topic” in employment law (and consequently a huge pain for employers), take a look at the statistics released by the Administrative Office of the United States Courts. According to the latest edition of the Federal Judicial Caseload Statistics (an annual compilation and assessment of the federal court dockets), employees filed a record 7,008 wage and hour suits in the 12-month period ending in March 2011. To put this into perspective, employees filed approximately 1,854 FLSA lawsuits in 2000. The number of annual suits hovered around that range until about 2003, when 4,055 FLSA suits were filed. In 2007, the number of FLSA filings rose to approximately 6,700. Keep in mind that these figures don’t include overtime claims made under state law or filed in state courts.
Plaintiffs’ attorneys are making a good living with wage and hour suits, which typically involve a discrete set of facts and settle early (allowing plaintiffs’ attorneys to take on larger case loads). Thus, it is now more important than ever for employers to take proactive steps to ensure FLSA compliance by confirming that all employees are properly classified under the FLSA.
Employee Smartphone Use May Cost Employers
It is no secret that some employees are expected to be “always on” and ready to respond to urgent work issues, even outside of normal working hours. Many employers issue company-owned or subsidized “smartphones” (including the iPhone, Blackberry, and other phones with internet capabilities) so that employees can be contacted by e-mail or text message when they are out of the office. The convenience factor of these devices is undeniable. However, employers may not realize that employees may be entitled to overtime pay if their after-hours smartphone use causes them to exceed 40 hours per week.
For example, the FLSA covers employees who are “on-call.” Whether on-call time is compensable depends largely on whether an employee can use his or her time for personal activities. When an employee is relieved of work duties and able to engage in personal activities, the employee is considered “waiting to be engaged” and is not entitled to compensation. On the other hand, when an employee is unable to make effective use of his personal time, he is “engaged to wait” and must be compensated. With after-hours usage of smartphones on the rise, employees are starting to claim that receiving e-mails outside of work is so restrictive that they are “engaged to wait” and should be compensated for their time. The line between “waiting to be engaged” and “engaged to wait” is not always clear.
So, how can employers avoid liability under the FLSA for off-the-clock smartphone use? One solution is for employers to block non-exempt employees from accessing work e-mail via smartphones during non-working hours. Alternatively, employers can choose to monitor, track, and pay overtime compensation to employees whose smartphone use results in their work hours exceeding 40 hours per week. Either way, employers need to understand the risk of liability for wage and hour violations when non-exempt employees use smartphones for work-related activities outside of normal business hours.
We will continue to pay close attention to wage and hour issues and keep you informed in our next edition of Overtime Update. Until then, please do not hesitate to contact any member of the Troutman Sanders LLP Labor & Employment Practice Group with your questions.
Originally published in Employment & The Law – 09/05/2012
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