CHRISTOPHER v. SMITHKLINE
Michael Christopher and Frank Buchanan began working for GlaxoSmithKline LLC (“Glaxo”) as pharmaceutical sales representatives (“PSRs”) in 2003. Glaxo developed, produced, marketed and sold pharmaceutical products to distributors or retail pharmacies, which subsequently sell those products to consumers when authorized by doctors via prescription. The plaintiffs worked between ten and twenty hours outside of normal business hours each week. PSRs are compensated with a salary and additional incentive-based pay; they are not paid overtime for work done outside of standard business hours.
The Fair Labor Standards Act (“FLSA”) was enacted in 1938 to protect the well-being of workers. It imposed a baseline overtime wage on employers for employees who work over forty hours a week. There was an exception to the rule for “outside salesmen”, defined by the Secretary of Labor (“Secretary”) as an employee whose primary duty is making sales or obtaining contracts and who is primarily and regularly engaged outside of the employer’s office. Christopher and Buchanan filed suit in August of 2008, alleging that Glaxo’s practice of requiring overtime work without additional pay violated the FLSA’s overtime provisions. Both parties filed for summary judgment, and the district court found for Glaxo, agreeing that the plaintiffs fell within the FLSA's "outside salesman" exception.
The U.S. Court of Appeals for the the Ninth Circuit affirmed the district court’s ruling. The Secretary filed an amicus curiae brief in support of Christopher and Buchanan’s position, arguing that when a PSR promotes pharmaceutical products but does not receive items of value in exchange for those products, he does not fall within the “outside salesman” exception to the FLSA. The court rejected the Secretary’s argument, however, reasoning that this definition is a simple parroting of the Congressional statute; such definitions require less deference by courts because they are not interpretive. Instead, the court pointed to Christopher and Buchanan’s training in sales --and their experience in sales as a qualification for employment by Glaxo-- as evidence of their status as “outside salesmen.” The court noted that the pharmaceutical industry self-regulated marketing to doctors much like other industries self-regulate direct-to-consumer marketing.
1. Must Glaxo and the courts defer to the Secretary of Labor’s definition of “outside salesman” under the Fair Labor Standards Act?
2. Does the Secretary of Labor’s definition of “outside salesman” apply to pharmaceutical sales representatives?
Legal provision: Fair Labor Standards Act
No, Yes. Justice Samuel A. Alito, Jr., writing for a 5-4 majority, affirmed the Ninth Circuit. The Supreme Court held that pharmaceutical sales representatives are “outside salesmen” under the FLSA. The Court did not defer to the Secretary's interpretation of the statute because it is directly contrary to the long held industry practice of treating PSRs as exempt. To follow the Secretary's interpretation now would unfairly burden the employers with liability for conduct that occurred long before the Secretary announced that interpretation. The text of the statute also supports the holding that PSRs are outside salesmen.
Justice Stephen G. Breyer dissented, arguing that PSRs do not actually sell anything because they merely obtain non-binding agreements from doctors to prescribe a certain drug when appropriate. If the PSRs do not make sales, then they cannot be outside salesmen under the FLSA. Justice Ruth Bader Ginsburg, Justice Sonia Sotomayor, and Justice Elena Kagan joined in the dissent.
NOTICE: This opinion is subject to formal revision before publication in the preliminary print of the United States Reports. Readers are requested to notify the Reporter of Decisions, Supreme Court of the United States, Washington, D. C. 20543, of any typographical or other formal errors, in order that corrections may be made before the preliminary print goes to press.
SUPREME COURT OF THE UNITED STATES
MICHAEL SHANE CHRISTOPHER, et al., PETITIONERS v. SMITHKLINE BEECHAM CORPORATION dba GLAXOSMITHKLINE
on writ of certiorari to the united states court of appeals for the ninth circuit
[June 18, 2012]
Justice Alito delivered the opinion of the Court.
The Fair Labor Standards Act (FLSA) imposes minimum wage and maximum hours requirements on employers, see 29 U. S. C. §§206–207 (2006 ed. and Supp. IV), but those requirements do not apply to workers employed “in the capacity of outside salesman,” §213(a)(1). This case requires us to decide whether the term “outside salesman,” as defined by Department of Labor (DOL or Department) regulations, encompasses pharmaceutical sales representatives whose primary duty is to obtain nonbinding commitments from physicians to prescribe their employer’s prescription drugs in appropriate cases. We conclude that these employees qualify as “outside salesm[e]n.”I A
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). 1
Congress did not define the term “outside salesman,” but it delegated authority to the DOL to issue regulations “from time to time” to “defin[e] and delimi[t]” the term. Ibid. The DOL promulgated such regulations in 1938, 1940, and 1949. In 2004, following notice-and-comment procedures, the DOL reissued the regulations with minor amendments. See 69 Fed. Reg. 22122 (2004). The current regulations are nearly identical in substance to the regulations issued in the years immediately following the FLSA’s enactment. See 29 CFR §§541.500–541.504 (2011).
Three of the DOL’s regulations are directly relevant to this case: §§541.500, 541.501, and 541.503. We refer to these three regulations as the “general regulation,” the “sales regulation,” and the “promotion-work regulation,” respectively.
The general regulation sets out the definition of the statutory term “employee employed in the capacity of outside salesman.” It defines the term to mean “any employee . . . [w]hose primary duty is . . . making sales within the meaning of [ 29 U. S. C. §203(k)]” 2 and “[w]ho is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.” 3 §§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, under 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.
The sales regulation restates the statutory definition of sale discussed above and clarifies that “[s]ales within the meaning of [ 29 U. S. C. §203(k)] include the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property.” 29 CFR §541.501(b).
Finally, the promotion-work regulation identifies “[p]romotion work” as “one type of activity often performed by persons who make sales, which may or may not be exempt outside sales work, depending upon the circumstances under which it is performed.” §541.503(a). Promotion work that is “performed incidental to and in conjunction with an employee’s own outside sales or solicitations is exempt work,” whereas promotion work that is “incidental to sales made, or to be made, by someone else is not exempt outside sales work.” Ibid.
Additional guidance concerning the scope of the outside salesman exemption can be gleaned from reports issued in connection with the DOL’s promulgation of regulations in 1940 and 1949, and from the preamble to the 2004 regulations. See Dept. of Labor, Wage and Hour Division, Report and Recommendations of the Presiding Officer at Hearings Preliminary to Redefinition (1940) (hereinafter 1940 Report); Dept. of Labor, Wage and Hour Division, Report and Recommendations on Proposed Revisions of Regulations, Part 541 (1949) (hereinafter 1949 Report); 69 Fed. Reg. 22160–22163 (hereinafter Preamble). Although the DOL has rejected proposals to eliminate or dilute the requirement that outside salesmen make their own sales, the Department has stressed that this requirement is met whenever an employee “in some sense make[s] a sale.” 1940 Report 46; see also Preamble 22162 (reiterating that the exemption applies only to an employee who “in some sense, has made sales”). And the DOL has made it clear that “[e]xempt status should not depend” on technicalities, such as “whether it is the sales employee or the customer who types the order into a computer system and hits the return button,” Preamble 22163, or whether “the order is filled by [a] jobber rather than directly by [the employee’s] own employer,” 1949 Report 83.B
Respondent SmithKline Beecham Corporation is in the business of developing, manufacturing, and selling prescription drugs. The prescription drug industry is subject to extensive federal regulation, including the now-familiar requirement that prescription drugs be dispensed only upon a physician’s prescription. 4 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 medical 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).
Respondent hired petitioners Michael Christopher and Frank Buchanan as pharmaceutical sales representatives in 2003. During the roughly four years when petitioners were employed in that capacity, 5 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 6 from the physician to prescribe those drugs in appropriate cases, and the training that petitioners received underscored the importance of that objective.
Petitioners spent about 40 hours each week in the field calling on physicians. These visits occurred during normal business hours, from about 8:30 a.m. to 5 p.m. Outside of normal business hours, petitioners spent an additional 10 to 20 hours each week attending events, reviewing product information, returning phone calls, responding to e-mails, and performing other miscellaneous tasks. Petitioners were not required to punch a clock or report their hours, and they were subject to only minimal supervision.
Petitioners were well compensated for their efforts. On average, Christopher’s annual gross pay was just over $72,000, and Buchanan’s was just over $76,000. 7 Petitioners’ gross pay included both a base salary and incentive pay. The amount of petitioners’ incentive pay was based on the sales volume or market share of their assigned drugs in their assigned sales territories, 8 and this amount was uncapped. Christopher’s incentive pay exceeded 30 percent of his gross pay during each of his years of employment; Buchanan’s exceeded 25 percent. It is undisputed that respondent did not pay petitioners time-and-a-half wages when they worked in excess of 40 hours per week.C
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. 9 The District Court agreed and granted summary judgment to respondent. See App. to Pet. for Cert. 37a–47a.
After the District Court issued its order, petitioners filed a motion to alter or amend the judgment, contending that the District Court had erred in failing to accord controlling deference to the DOL’s interpretation of the pertinent regulations. That interpretation had been announced in an uninvited amicus brief filed by the DOL in a similar action then pending in the Second Circuit. See Brief for Secretary of Labor as Amicus Curiae in In re Novartis Wage and Hour Litigation, No. 09–0437 (hereinafter Secretary’s Novartis Brief). The District Court rejected this argument and denied the motion. See App. to Pet. for Cert. 48a–52a.
The Court of Appeals for the Ninth Circuit affirmed. See 635 F. 3d 383. The Court of Appeals agreed that the DOL’s interpretation 10 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.
The Ninth Circuit’s decision conflicts with the Second Circuit’s decision in In re Novartis Wage and Hour Litigation, 611 F. 3d 141, 153–155 (2010) (holding that the DOL’s interpretation is entitled to controlling deference). We granted certiorari to resolve this split, 565 U. S. ___ (2011), and we now affirm the judgment of the Ninth Circuit.II
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) . It is to that question that we now turn.A
The DOL first announced its view that pharmaceutical detailers are not exempt outside salesmen in an amicus brief filed in the Second Circuit in 2009, and the Department has subsequently filed similar amicus briefs in other cases, including the case now before us. 11 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 consummated 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, 12 the Department changed course after we granted certiorari in this case. The Department now takes the position that “[a]n employee does not make a ‘sale’ for purposes of the ‘outside salesman’ exemption unless he actually transfers title to the property at issue.” Brief for United States as Amicus Curiae 12–13 (hereinafter U. S. Brief). 13 Petitioners and the DOL assert that this new interpretation of the regulations is entitled to controlling deference. See Brief for Petitioners 31–42; U. S. Brief 30–34. 14
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) , or a “ ‘post hoc rationalizatio[n]’ advanced by an agency seeking to defend past agency action against attack,” Auer, supra, at 462 (quoting Bowen, supra, at 212; alteration in original).
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.). 15 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 proceeded 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) (suggesting that an agency should not change an interpretation in an adjudicative proceeding where doing so would impose “new liability . . . on individuals for past actions which were taken in good-faith reliance on [agency] pronouncements” or in a case involving “fines or damages”).
This case well illustrates the point. 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 certainly do not provide clear notice of this. The general regulation adopts the broad statutory definition of “sale,” and that definition, in turn, employs the broad catchall phrase “other disposition.” See 29 CFR §541.500(a)(1). This catchall phrase could reasonably be construed to encompass a nonbinding commitment from a physician to prescribe a particular drug, and nothing in the statutory or regulatory text or the DOL’s prior guidance plainly requires a contrary reading. See Preamble 22162 (explaining that an employee must “in some sense” make a sale); 1940 Report 46 (same).
Even more important, despite the industry’s decades-long practice of classifying pharmaceutical detailers as exempt employees, the DOL never initiated any enforcement actions with respect to detailers or otherwise suggested that it thought the industry was acting unlawfully. 16 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 unlawful. 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.
Our practice of deferring to an agency’s interpretation of its own ambiguous regulations undoubtedly has important advantages, 17 but this practice also creates a risk that agencies will promulgate vague and open-ended regulations that they can later interpret as they see fit, thereby “frustrat[ing] the notice and predictability purposes of rulemaking.” Talk America, Inc. v. Michigan Bell Telephone Co., 564 U. S. ___, ___ (2011) (Scalia, J., concurring) (slip op., at 3); see also Stephenson & Pogoriler, Seminole Rock’s Domain, 79 Geo. Wash. L. Rev. 1449, 1461–1462 (2011); Manning, Constitutional Structure and Judicial Deference to Agency Interpretations of Agency Rules, 96 Colum. L. Rev. 612, 655–668 (1996). It is one thing to expect regulated parties to conform their conduct to an agency’s interpretations once the agency announces them; it is quite another to require regulated parties to divine the agency’s interpretations in advance or else be held liable when the agency announces its interpretations for the first time in an enforcement proceeding and demands deference.
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) (quoting Skidmore v. Swift & Co., 323 U. S. 134, 140 (1944) ).B
We find the DOL’s interpretation of its regulations quite unpersuasive. The interpretation to which we are now asked to defer—that a sale demands a transfer of title—plainly lacks the hallmarks of thorough consideration. Because the DOL first announced its view that pharmaceutical sales representatives do not qualify as outside salesmen in a series of amicus briefs, there was no opportunity for public comment, and the interpretation that initially emerged from the Department’s internal decisionmaking process proved to be untenable. After arguing successfully in the Second Circuit and then unsucessfully in the Ninth Circuit that a sale for present purposes simply requires a “consummated transaction,” the DOL advanced a different interpretation in this Court. Here, the DOL’s brief states unequivocally that “[a]n employee does not make a ‘sale’ for purposes of the ‘outside salesman’ exemption unless he actually transfers title to the property at issue.” U. S. Brief 12–13.
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 agency to sell and return the proceeds, or the specific goods if not sold . . . does not involve a change of title”); Hawkland, Consignment Selling Under the Uniform Commercial Code, 67 Com. L. J. 146, 147 (1962) (explaining that “ ‘[a] consignment of goods for sale does not pass the title at any time, nor does it contemplate that it should be passed’ ” (quoting Rio Grande Oil Co. v. Miller Rubber Co. of N. Y., 31 Ariz. 84, 87, 250 P. 564, 565 (1926))).
The DOL cannot salvage its interpretation by arguing that a “consignment for sale” may eventually result in the transfer of title (from the consignor to the ultimate purchaser if the consignee in fact sells the good). Much the same may be said about a physician’s nonbinding commitment to prescribe a particular product in an appropriate case. In that situation, too, agreement may eventually result in the transfer of title (from the manufacturer to a pharmacy and ultimately to the patient for whom the drug is prescribed).
In support of its new interpretation, the DOL relies heavily on its sales regulation, which states in part that “[s]ales [for present purposes] include the transfer of title to tangible property,” 29 CFR §541.501(b) (emphasis added). This regulation, however, provides little support for the DOL’s position. The DOL reads the sales regulation to mean that a “sale” necessarily includes the transfer of title, but that is not what the regulation says. And it seems clear that that is not what the regulation means. The sentence just subsequent to the one on which the DOL relies, echoing the terms of the FLSA, makes clear that a “consignment for sale” qualifies as a sale. Since a consignment for sale does not involve a transfer of title, it is apparent that the sales regulation does not mean that a sale must include a transfer of title, only that transactions involving a transfer of title are included within the term “sale.”
Petitioners invite us to look past the DOL’s “determination that a sale must involve the transfer of title” and instead defer to the Department’s “explanation that obtaining a non-binding commitment to prescribe a drug constitutes promotion, and not sales.” Reply Brief for Petitioners 17. The problem with the DOL’s interpretation of the promotion-work regulation, however, is that it depends almost entirely on the DOL’s flawed transfer-of-title interpretation. The promotion-work regulation does not distinguish between promotion work and sales; rather, it distinguishes between exempt promotion work and nonexempt promotion work. Since promotion work that is performed incidental to an employee’s own sales is exempt, the DOL’s conclusion that pharmaceutical detailers perform only nonexempt promotion work is only as strong as the reasoning underlying its conclusion that those employees do not make sales. For the reasons already discussed, we find this reasoning wholly unpersuasive.
In light of our conclusion that the DOL’s interpretation is neither entitled to Auer deference nor persuasive in its own right, we must employ traditional tools of interpretation to determine whether petitioners are exempt outside salesmen.C 1
We begin with the text of the FLSA. Although the provision that establishes the overtime salesman exemption does not furnish a clear answer to the question before us, it provides at least one interpretive clue: It exempts anyone “employed . . . in the capacity of [an] outside salesman.” 29 U. S. C. §213(a)(1) (emphasis added). “Capacity,” used in this sense, means “[o]utward condition or circumstances; relation; character; position.” Webster’s New International Dictionary 396 (2d ed. 1934); see also 2 Oxford English Dictionary 89 (def. 9) (1933) (“Position, condition, character, relation”). The statute’s emphasis on the “capacity” of the employee 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. 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 statutory 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. 18
Third, Congress also included a broad catchall phrase: “other disposition.” Neither the statute nor the regulations define “disposition,” but dictionary definitions of the term range from “relinquishment or alienation” to “arrangement.” See Webster’s New International Dictionary 644 (def. 1(b)) (1927) (“[t]he getting rid, or making over, of anything; relinquishment or alienation”); ibid. (def. 1(a)) (“[t]he ordering, regulating, or administering of anything”); 3 Oxford English Dictionary, supra, at 493 (def. 4) (“[t]he action of disposing of, putting away, getting rid of, making over, etc.”); ibid. (def. 1) (“[t]he action of setting in order, or condition of being set in order; arrangement, order”). We agree with the DOL that the rule of ejusdem generis should guide our interpretation of the catchall phrase, since it follows a list of specific items. 19 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) (instructing that rule of ejusdem generis cannot be employed to “obscure and defeat the intent and purpose of Congress” or “render general words meaningless”). Indeed, we are hard pressed to think of any contract for the exchange of goods or services in return for value or any firm agreement to buy that would not also fall within one of the specifically enumerated categories. 20
The specific list of transactions that precedes the phrase “other disposition” seems to us to represent an attempt to accommodate industry-by-industry variations in methods of selling commodities. Consequently, we think that the catchall phrase “other disposition” 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. 21 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.” 222
Given our interpretation of “other disposition,” it follows that petitioners made sales for purposes of the FLSA and therefore are exempt outside salesmen within the meaning of the DOL’s regulations. Obtaining a nonbinding commitment from a physician to prescribe one of respondent’s drugs is the most that petitioners were able to do to ensure the eventual disposition of the products that respondent sells. 23 This kind of arrangement, in the unique regulatory environment within which pharmaceutical companies must operate, comfortably falls within the catchall category of “other disposition.”
That petitioners bear all of the external indicia of salesmen provides further support for our conclusion. Petitioners were hired for their sales experience. They were trained to close each sales call by obtaining the maximum commitment possible from the physician. They worked away from the office, with minimal supervision, and they were rewarded for their efforts with incentive compensation. It would be anomalous to require respondent to compensate petitioners for overtime, while at the same time exempting employees who function identically to petitioners in every respect except that they sell physician-administered drugs, such as vaccines and other injectable pharmaceuticals, that are ordered by the physician directly rather than purchased by the end user at a pharmacy with a prescription from the physician.
Our holding also comports with the apparent purpose of the FLSA’s exemption for outside salesmen. The exemption is premised on the belief that exempt employees “typically earned salaries well above the minimum wage” and enjoyed other benefits that “se[t] them apart from the nonexempt workers entitled to overtime pay.” Preamble 22124. It was also thought that exempt employees performed a kind of work that “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 and generally precluding the potential job expansion intended by the FLSA’s time-and-a-half overtime premium.” Ibid. Petitioners—each of whom earned an average of more than $70,000 per year and spent between 10 and 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. And it would be challenging, to say the least, for pharmaceutical companies to compensate detailers for overtime going forward without significantly changing the nature of that position. See, e.g., Brief for PhRMA as Amicus Curiae 14–20 (explaining that “key aspects of [detailers’] jobs as they are currently structured are fundamentally incompatible with treating [detailers] as hourly employees”).3
The remaining arguments advanced by petitioners and the dissent are unavailing. Petitioners contend that detailers are more naturally classified as nonexempt promotional employees who merely stimulate sales made by others than as exempt outside salesmen. They point out that respondent’s prescription drugs are not actually sold until distributors and retail pharmacies order the drugs from other employees. See Reply Brief for Petitioners 7. Those employees, 24 they reason, are the true salesmen in the industry, not detailers. This formalistic argument is inconsistent with the realistic approach that the outside salesman exemption is meant to reflect.
Petitioners’ theory seems to be that an employee is properly classified as a nonexempt promotional employee whenever there is another employee who actually makes the sale in a technical sense. But, taken to its extreme, petitioners’ theory would require that we treat as a nonexempt promotional employee a manufacturer’s representative who takes an order from a retailer but then transfers the order to a jobber’s employee to be filled, or a car salesman who receives a commitment to buy but then asks his or her assistant to enter the order into the computer. This formalistic approach would be difficult to reconcile with the broad language of the regulations and the statutory definition of “sale,” and it is in significant tension with the DOL’s past practice. See 1949 Report 83 (explaining that the manufacturer’s representative was clearly “performing sales work regardless of the fact that the order is filled by the jobber rather than directly by his own employer”); Preamble 22162 (noting that “technological changes in how orders are taken and processed should not preclude the exemption for employees who in some sense make the sales”).
Petitioners additionally argue that detailers are the functional equivalent of employees who sell a “concept,” and they point to Wage and Hour Division opinion letters, as well as lower court decisions, deeming such employees nonexempt. See Brief for Petitioners 47–48. Two of these opinions, however, concerned employees who were more analogous to buyers than to sellers. See Clements v. Serco, Inc., 530 F. 3d 1224, 1229–1230, n. 4 (CA10 2008) (explaining that, although military recruiters “[i]n a loose sense” were “selling the Army’s services,” it was the Army that would “pa[y] for the services of the recruits who enlist”); Opinion Letter from Dept. of Labor, Wage and Hour Division (Aug. 19, 1994), 1994 WL 1004855 (explaining that selling the “concept” of organ donation “is similar to that of outside buyers who in a very loose sense are sometimes described as selling their employer’s ‘service’ to the person for whom they obtain their goods”). And the other two opinions are likewise inapposite. One concerned employees who were not selling a good or service at all, see Opinion Letter from Dept. of Labor, Wage and Hour Division (May 22, 2006), 2006 WL 1698305 (concluding that employees who solicit charitable contributions are not exempt), and the other concerned employees who were incapable of selling any good or service because their employer had yet to extend an offer, see Opinion Letter from Dept. of Labor, Wage and Hour Division (Apr. 20, 1999), 1999 WL 1002391 (concluding that college recruiters are not exempt because they merely induce qualified customers to apply to the college, and the college “in turn decides whether to make a contractual offer of its educational services to the applicant”).
Finally, the dissent posits that the “primary duty” of a pharmaceutical detailer is not “to obtain a promise to prescribe a particular drug,” but rather to “provid[e] information so that the doctor will keep the drug in mind with an eye toward using it when appropriate.” Post, at 6. But the record in this case belies that contention. Petitioners’ end goal was not merely to make physicians aware of the medically appropriate uses of a particular drug. Rather, it was to convince physicians actually to prescribe the drug in appropriate cases. See App. to Pet. for Cert. 40a (finding that petitioners’ “primary objective was convincing physicians to prescribe [respondent’s] products to their patients”).* * *
For these reasons, we conclude that petitioners qualify as outside salesmen under the most reasonable interpretation of the DOL’s regulations. The judgment of the Court of Appeals is
1 This provision also exempts workers “employed in a bona fide executive, administrative, or professional capacity.” 29 U. S. C. §213(a)(1).
2 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.
3 It is undisputed that petitioners were “customarily and regularly engaged away” from respondent’s place of business in performing their responsibilities.
4 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.
5 Respondent terminated Christopher’s employment in 2007, and Buchanan left voluntarily the same year to accept a similar position with another pharmaceutical company.
6 The parties agree that the commitment is nonbinding.
7 The median pay for pharmaceutical detailers nationwide exceeds $90,000 per year. See Brief for Respondent 14.
8 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.
9 Respondent also argued that petitioners were exempt administrative employees. The District Court and the Court of Appeals found it unnecessary to reach that argument, and the question is not before us.
10 The DOL filed an amicus brief in the Ninth Circuit advancing substantially the same interpretation it had advanced in its brief in the Second Circuit. See Brief for Secretary of Labor as Amicus Curiae in No. 10–15257.
11 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).
12 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.”
13 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.
14 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) (noting that “it would be quite inappropriate to defer to an interpretation which has been abandoned by the policymaking agency itself ”).
15 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”).
16 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.
17 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).
18 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) (noting that “[w]hen a statute includes an explicit definition, we must follow that definition” (internal quotation marks omitted)).
19 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).
20 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.
21 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) . Petitioners and the DOL contend that Arnold requires us to construe the outside salesman exemption narrowly, but Arnold is inapposite where, as here, we are interpreting a general definition that applies throughout the FLSA.
22 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.
23 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.
24 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”).
SUPREME COURT OF THE UNITED STATES
MICHAEL SHANE CHRISTOPHER, et al., PETITIONERS v. SMITHKLINE BEECHAM CORPORATION dba GLAXOSMITHKLINE
on writ of certiorari to the united states court of appeals for the ninth circuit
[June 18, 2012]
Justice Breyer, with whom Justice Ginsburg, Justice Sotomayor, and Justice Kagan join, dissenting.
The Fair Labor Standards Act (FLSA) exempts from federal maximum hour and minimum wage requirements “any employee employed . . . in the capacity of outside salesman.” 29 U. S. C. §213(a)(1). The question is whether drug company detailers fall within the scope of the term “outside salesman.” In my view, they do not.I
The Court describes the essential aspects of the detailer’s job as follows: First, the detailer “provide[s] information to physicians about the company’s products in hopes of persuading them to write prescriptions for the products in appropriate cases.” Ante, at 5. Second, the detailers “cal[l] on physicians in an assigned sales terri-tory to discuss the features, benefits, and risks of an assigned portfolio of respondent’s prescription drugs,” and they seek a “nonbinding commitment from the physician to prescribe those drugs in appropriate cases . . . . ” Ibid. (footnote omitted). Third, the detailers’ compensation includes an “incentive” element “based on the sales volume or market share of their assigned drugs in their assigned sales territories.” Ante, at 6. The Court adds that the detailers work with “only minimal supervision” and beyond normal business hours “attending events, reviewing product information, returning phone calls, responding to e-mails, and performing other miscellaneous tasks.” Ante, at 6.
As summarized, I agree with the Court’s description of the job. In light of important, near-contemporaneous differences in the Justice Department’s views as to the meaning of relevant Labor Department regulations, see ante, at 8–9, I also agree that we should not give the Solicitor General’s current interpretive view any especially favorable weight. Ante, at 14. Thus, I am willing to assume, with the Court, that we should determine whether the statutory term covers the detailer’s job as here described through our independent examination of the statute’s language and the related Labor Department regulations. But, I conclude on that basis that a detailer is not an “outside salesman.”II
The FLSA does not itself define the term “outside salesman.” Rather, it exempts from wage and hour requirements “any employee employed . . . in the capacity of outside salesman (as such terms are defined and delimited from time to time by regulations of the Secretary).” 29 U. S. C. §213(a)(1) (emphasis added). Thus, we must look to relevant Labor Department regulations to answer the question. See Chevron U. S. A. Inc. v. Natural Resources Defense Council, Inc., 467 U. S. 837 (1984) ; see also Long Island Care at Home, Ltd. v. Coke, 551 U. S. 158, 165 (2007) (explaining that “the FLSA explicitly leaves gaps” to be filled by regulations).
There are three relevant regulations. The first is entitled “General rule for outside sales employees,” 29 CFR §541.500 (2011); the second is entitled “Making sales or obtaining orders,” §541.501; and the third is entitled “Promotion work,” §541.503. The relevant language of the first two regulations is similar. The first says that the term “ ‘employee employed in the capacity of outside salesman’ . . . shall mean any employee . . . [w]hose pri-mary duty is: (i) making sales within the meaning of sec-tion 3(k) of the Act, or (ii) obtaining orders or contracts for services or for the use of facilities . . . .” §541.500(a)(1). The second regulation tells us that the first regulation “requires that the employee be engaged in . . . (1) Making sales within the meaning of section 3(k) of the Act, or (2) Obtaining orders or contracts for services or for the use of facilities.” §541.501(a).
The second part of these quoted passages is irrelevant here, for it concerns matters not at issue, namely “orders or contracts for services or for the use of facilities.” The remaining parts of the two regulations are similarly irrelevant. See Appendix, infra. Thus, the relevant portions of the first two regulations say simply that the employee’s “primary duty” must be “making sales within the meaning of section 3(k) of the Act.” And §3(k) of the Act says that the word “ ‘Sale’ or ‘sell’ includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.” 29 U. S. C. §203(k).
Unless we give the words of the statute and regulations some special meaning, a detailer’s primary duty is not that of “making sales” or the equivalent. A detailer might convince a doctor to prescribe a drug for a particular kind of patient. If the doctor encounters such a patient, he might prescribe the drug. The doctor’s client, the patient, might take the prescription to a pharmacist and ask the pharmacist to fill the prescription. If so, the pharmacist might sell the manufacturer’s drug to the patient, or might substitute a generic version. But it is the pharmacist, not the detailer, who will have sold the drug.
To put the same fairly obvious point in the language of the regulations and of §3(k) of the FLSA, see 29 U. S. C. §203(k), the detailer does not “sell” anything to the doctor. See Black’s Law Dictionary 1454 (9th ed. 2009) (defining “sale” as “[t]he transfer of property or title for a price”). Nor does he, during the course of that visit or immedi-ately thereafter, “exchange” the manufacturer’s product for money or for anything else. He enters into no “contract to sell” on behalf of anyone. He “consigns” nothing “for sale.” He “ships” nothing for sale. He does not “dispose” of any product at all.
What the detailer does is inform the doctor about the nature of the manufacturer’s drugs and explain their uses, their virtues, their drawbacks, and their limitations. The detailer may well try to convince the doctor to prescribe the manufacturer’s drugs for patients. And if the detailer is successful, the doctor will make a “nonbinding commitment” to write prescriptions using one or more of those drugs where appropriate. If followed, that “nonbinding commitment” is, at most, a nonbinding promise to consider advising a patient to use a drug where medical indications so indicate (if the doctor encounters such a patient), and to write a prescription that will likely (but may not) lead that person to order that drug under its brand name from the pharmacy. (I say “may not” because 30% of patients in a 2-year period have not filled a prescription given to them by a doctor. See USA Today, Kaiser Family Foundation, Harvard School of Public Health, The Public on Prescription Drugs and Pharmaceutical Companies 3 (2008), available at http://www.kff.org/kaiserpolls/upload/7748.pdf (all Internet materials as visited June 13, 2012, and available in Clerk of Court’s case file). And when patients do fill prescriptions, 75% are filled with generic drugs. See Dept. of Health and Human Services, Office of Science & Data Policy, Expanding the Use of Generic Drugs 2 (2010).)
Where in this process does the detailer sell the product? At most he obtains from the doctor a “nonbinding commitment” to advise his patient to take the drug (or perhaps a generic equivalent) as well as to write any necessary prescription. I put to the side the fact that neither the Court nor the record explains exactly what a “nonbinding commitment” is. Like a “definite maybe,” an “impos-sible solution,” or a “theoretical experience,” a “nonbinding commitment” seems to claim more than it can deliver. Regardless, other than in colloquial speech, to obtain a commitment to advise a client to buy a product is not to obtain a commitment to sell that product, no matter how often the client takes the advice (or the patient does what the doctor recommends).
The third regulation, entitled “Promotion work,” lends support to this view. That is because the detailer’s work as described above is best viewed as promotion work. The regulation makes clear that promotion work falls within the statutory exemption only when the promotion work “is actually performed incidental to and in conjunction with an employee’s own outside sales or solicitations.” 29 CFR §541.503(a) (emphasis added). But it is not exempt if it is “incidental to sales made, or to be made, by someone else.” Ibid.
The detailer’s work, in my view, is more naturally characterized as involving “[p]romotional activities designed to stimulate sales . . . made by someone else,” §541.503, e.g., the pharmacist or the wholesaler, than as involving “[p]romotional activities designed to stimulate” the detailer’s “own sales.”
Three other relevant documents support this reading. First, the Pharmaceutical Research and Manufacturers of America (PhRMA), of which respondent is a member, publishes a “Code on Interactions with Healthcare Pro-fessionals.” See PhRMA, Code on Interactions with Healthcare Professionals (PhRMA Code) (rev. July 2008), available at http://www.phrma.org/sites/default/files/108/ phrma_marketing_code_2008.pdf. The PhRMA Code de-scribes a detailer’s job in some depth. It consistently refers to detailers as “delivering accurate, up-to-date information to healthcare professionals,” id., at 14, and it stresses the importance of a doctor’s treatment decision being based “solely on each patient’s medical needs” and the doctor’s “medical knowledge and experience,” id., at 2. The PhRMA Code also forbids the offering or providing of anything “in a manner or on conditions that would interfere with the independence of a healthcare professional’s prescribing practices.” Id., at 13. But the PhRMA Code nowhere refers to detailers as if they were salesmen, rather than providers of information, nor does it refer to any kind of commitment.
To the contrary, the document makes clear that the pharmaceutical industry itself understands that it cannot be a detailer’s “primary duty” to obtain a nonbinding commitment, for, in respect to many doctors, such a commitment taken alone is unlikely to make a significant difference to their doctor’s use of a particular drug. When a particular drug, say Drug D, constitutes the best treatment for a particular patient, a knowledgeable doctor should (hence likely will) prescribe it irrespective of any nonbinding commitment to do so. Where some other drug, however, is likely to prove more beneficial for a particular patient, that doctor should not (hence likely will not) prescribe Drug D irrespective of any nonbinding commitment to the contrary.
At a minimum, the document explains why a detailer should not (hence likely does not) see himself as seeking primarily to obtain a promise to prescribe a particular drug, as opposed to providing information so that the doctor will keep the drug in mind with an eye toward using it when appropriate. And because the detailer’s “primary duty” is informational, as opposed to sales-oriented, he fails to qualify as an outside salesman. See §541.500(a)(1)(i) (restricting the outside salesman exemption to employees “[w]hose primary duty is . . . making sales” (emphasis added)). A detailer operating in accord with the PhRMA Code “sells” the product only in the way advertisers (particularly very low key advertisers) “sell” a product: by creating demand for the product, not by taking orders.
Second, a Labor Department Wage and Hour Division Report written in 1940 further describes the work of “sales promotion men.” See Dept. of Labor, Wage and Hour Division, Report and Recommendations of the Presiding Officer at Hearings Preliminary to Redefinition (1940) (1940 Report). The 1940 Report says that such individuals “pav[e] the way” for sales by others. Id., at 46. “Frequently,” they deal “with [the] retailers who are not customers of [their] own employer but of [their] employer’s customer.” Ibid. And they are “primarily interested in sales by the retailer, not to the retailer.” Ibid. “[T]hey do not make actual sales,” and they “are admittedly not outside salesmen.” Ibid.
Like the “sales promotion men,” the detailers before us deal with individuals, namely doctors, “who are not customers” of their own employer. And the detailers are primarily interested in sales authorized by the doctor, not to the doctor. According to the 1940 Report, sales promotion men are not “outside salesmen,” primarily because they seek to bring about, not their own sales, but sales by others. Thus, the detailers in this case are not “outside salesmen.”
Third, a Wage and Hour Division Report written in 1949 notes that where “work is promotional in nature it is sometimes difficult to determine whether it is incidental to the employee’s own sales work.” See Dept. of Labor, Wage and Hour Division, Report and Recommendations on Proposed Revisions of Regulations, Part 541, p. 82 (1949) (1949 Report). It adds that 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 83 (emphasis added).
The 1949 Report also refers to a
“company representative who visits chain stores, arranges the merchandise on shelves, replenishes stock . . . , consults with the manager as to the requirements of the store, fills out a requisition for the quantity wanted and leaves it with the store manager to be transmitted to the central warehouse of the chain-store company which later ships the quantity re-quested.” Id., at 84.
It says this company representative is not an “outside salesman” because he
“does not consummate the sale nor direct his efforts toward the consummation of a sale (the store manager often has no authority to buy).” Ibid.
See also 29 CFR §541.503(c) (explaining that if an em-ployee “does not consummate the sale nor direct efforts to-ward the consummation of a sale, the work is not exempt outside sales work”)
A detailer does not take orders, he does not consummate a sale, and he does not direct his efforts towards the consummation of any eventual sale (by the pharmacist) any more than does the “company’s representative” in the 1949 Report’s example. The doctor whom the detailer visits, like the example’s store manager, “has no authority to buy.”
Taken together, the statute, regulations, ethical codes, and Labor Department Reports indicate that the drug detailers do not promote their “own sales,” but rather “sales made, or to be made, by someone else.” Therefore, detailers are not “outside salesmen.”III
The Court’s different conclusion rests primarily upon its interpretation of the statutory words “other disposition” as “including those arrangements that are tantamount, in a particular industry, to a paradigmatic sale of a commod-ity.” Ante, at 19. Given the fact that the doctor buys noth-ing, the fact that the detailer sells nothing to the doctor, and the fact that any “nonbinding commitment” by the doctor must, of ethical necessity, be of secondary importance, there is nothing about the detailer’s visit with the doctor that makes the visit (or what occurs during the visit) “tantamount . . . to a paradigmatic sale.” Ibid. See Part I, supra.
The Court adds that “[o]btaining a nonbinding commitment from a physician to prescribe one of respondent’s drugs is the most that petitioners were able to do to ensure the eventual disposition of the products that respondent sells.” Ante, at 20. And that may be so. But there is no “most they are able to do” test. After all, 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, but that fact does not help qualify the posting employee as a “salesman.” The Court adds that it means to apply this test only when the law precludes “an entire industry . . . from selling its products in the ordinary manner.” Ante, at 21, n. 23. But the law might preclude an industry from selling its products through an outside salesman without thereby leading the legal term “outside salesman” to apply to whatever is the next best thing. In any event, the Court would be wrong to assume, if it does assume, that there is in nearly every industry an outside salesman lurking somewhere (if only we can find him). An industry might, after all, sell its goods through wholesalers or retailers, while using its own outside employees to encourage sales only by providing third parties with critically important information.
The Court expresses concern lest a holding that detailers are not “salesmen” lead to holdings that the statute forbids treating as a “salesman” an employee “who takes an order from a retailer but then transfers the order to a jobber’s employee to be filled,” ante, at 23, or “a car salesman who receives a commitment to buy but then asks his or her assistant to enter the order into the computer,” ibid. But there is no need for any such fear. Both these examples involve employees who are salesmen because they obtain a firm commitment to buy the product. See 1949 Report 83 (as to the first example, such an employee “has obtained a commitment from the customer”); 69 Fed. Reg. 22163 (2004) (as to the second example, explaining that “[e]xempt status should not depend on . . . who types the order into a computer,” but maintaining requirement that a salesman “obtai[n] a commitment to buy from the person to whom he is selling”). The problem facing the detailer is that he does not obtain any such commitment.
Finally, the Court points to the detailers’ relatively high pay, their uncertain hours, the location of their work, their independence, and the fact that they frequently work overtime, all as showing that detailers fall within the basic purposes of the statutory provision that creates exceptions from wage and hour requirements. Ante, at 5–6. The problem for the detailers, however, is that the statute seeks to achieve its general objectives by creating certain categories of exempt employees, one of which is the category of “outside salesman.” It places into that category only those who satisfy the definition of “outside salesman” as “defined and delimited from time to time by regulations of the Secretary.” 29 U. S. C. §213(a)(1) (emphasis added). And the detailers do not fall within that category as defined by those regulations.
For these reasons, with respect, I dissent.Appendix
1. 29 CFR §541.500 (2011) provides:
“General rule for outside sales employees.
“(a) The term ‘employee employed in the capacity of outside salesman’ in section 13(a)(1) of the Act shall mean any employee:
“(1)Whose primary duty is:
“(i) making sales within the meaning of section 3(k) of the Act, or
“(ii) obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer; and
“(2) Who is customarily and regularly engaged away from the employer’s place or places of business in performing such primary duty.
“(b) The term ‘primary duty’ is defined at §541.700. In determining the primary duty of an outside sales employee, work performed incidental to and in conjunction with the employee’s own outside sales or solicitations, including incidental deliveries and collections, shall be regarded as exempt outside sales work. Other work that furthers the employee’s sales efforts also shall be regarded as exempt work including, for example, writing sales reports, updating or revising the employee’s sales or display catalogue, planning itineraries and attending sales conferences.
“(c) The requirements of subpart G (salary requirements) of this part do not apply to the outside sales employees described in this section.”
2. 29 CFR §541.501 (2011) provides:
“Making sales or obtaining orders.
“(a) Section 541.500 requires that the employee be engaged in:
“(1) Making sales within the meaning of section 3(k) of the Act, or
“(2) Obtaining orders or contracts for services or for the use of facilities.
“(b) Sales within the meaning of section 3(k) of the Act include the transfer of title to tangible property, and in certain cases, of tangible and valuable evidences of intangible property. Section 3(k) of the Act states that ‘sale’ or ‘sell’ includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition.
“(c) Exempt outside sales work includes not only the sales of commodities, but also ‘obtaining orders or contracts for services or for the use of facilities for which a consideration will be paid by the client or customer.’ Obtaining orders for ‘the use of facilities’ includes the selling of time on radio or television, the solicitation of advertising for newspapers and other periodicals, and the solicitation of freight for railroads and other transportation agencies.
“(d) The word ‘services’ extends the outside sales exemption to employees who sell or take orders for a service, which may be performed for the customer by someone other than the person taking the order.”
3. 29 CFR §541.503 (2011) provides:
“(a) Promotion work is one type of activity often performed by persons who make sales, which may or may not be exempt outside sales work, depending upon the circumstances under which it is performed. Promotional work that is actually performed incidental to and in conjunction with an employee’s own outside sales or solicitations is exempt work. On the other hand, promotional work that is incidental to sales made, or to be made, by someone else is not exempt outside sales work. An employee who does not satisfy the requirements of this subpart may still qualify as an exempt employee under other subparts of this rule.
“(b) A manufacturer’s representative, for example, may perform various types of promotional activities such as putting up displays and posters, removing damaged or spoiled stock from the merchant’s shelves or rearranging the merchandise. Such an employee can be considered an exempt outside sales employee if the employee’s primary duty is making sales or contracts. Promotion activities directed toward consummation of the employee’s own sales are exempt. Promotional activities designed to stimulate sales that will be made by someone else are not exempt outside sales work.
“(c) Another example is a company representative who visits chain stores, arranges the merchandise on shelves, replenishes stock by replacing old with new merchandise, sets up displays and consults with the store manager when inventory runs low, but does not obtain a commitment for additional purchases. The arrangement of merchandise on the shelves or the replenishing of stock is not exempt work unless it is incidental to and in conjunction with the employee's own outside sales. Because the employee in this instance does not consummate the sale nor direct efforts toward the consummation of a sale, the work is not exempt outside sales work.”
ORAL ARGUMENT OF THOMAS C. GOLDSTEIN ON BEHALF OF THE PETITIONERS
Chief Justice John G. Roberts: We'll hear argument this morning in Case 11-204, Christopher v. SmithKline Beecham.
Mr. Goldstein: Mr. Chief Justice, and may it please the Court:
In the Fair Labor Standards Act, Congress directed the Secretary of Labor to quote/unquote "define and delimit" the statute's outside salesmen exemption.
By regulation, the Secretary provided that an outside salesman is one who makes sales rather than promoting sales by others.
In further guidance, the Secretary elaborated that nonexempt promotion includes either, one, a conversation where there can be no commitment or, two, one where there would be no exchange with the employer.
Now, everyone agrees that a pharmaceutical detailer engages in promotion.
They tout drugs to doctors.
Everyone agrees that there can't be a commitment to issue a prescription.
Everyone agrees that a prescription is not an exchange with a pharmaceutical company.
But nonetheless, the Respondent argues that pharmaceutical detailers sell drugs directly to doctors as a matter of law.
They say that follows from the fact that the Secretary's regulation incorporates the definition of FLSA, which is in the blue brief in the appendix at page 1.
That definition, which is section 203(k), provides -- it's the second provision on the page --
""sale" or "sell" includes any sale, exchange, contract to sell, consignment for sale, shipment for sale, or other disposition. "
And what you will not find in that language is anything that contradicts the two points the Secretary has made, which is that there has to be a commitment or that at the very least, there has to be an exchange with the employer.
Justice Samuel Alito: Well, is that consistent with the government's argument?
They argue, quote,
"an employee does not make a sale for purposes of the outside salesmen exemption unless he actually transfers title to the property at issue. "
The statute refers to a consignment for sale.
When that occurs, does -- does the consignor actually transfer title to the property at issue?
Mr. Goldstein: It is an arrangement for transfer of title, and that's why it's critical.
But it says a consignment for sale, the sale being the transfer of title.
But in all events, this case is not a fight about transferring title or some lesser form of exchange, because there's no exchange between the doctor and the--
Justice Samuel Alito: I understand that, but I would appreciate an answer--
Mr. Goldstein: --Yes.
Justice Samuel Alito: --to my question.
Mr. Goldstein: Yes.
Justice Samuel Alito: Is the government's position consistent with the reference to consignment for sale?
When a consignment for sale occurs, is there a transfer of title?
Mr. Goldstein: There is an agreement for a transfer of title, and I believe there--
Justice Samuel Alito: Is there a -- a transfer of title?
Mr. Goldstein: --I apologize.
There is not a transfer of title, but there is an agreement for transfer of title.
They -- just to be clear, the government says the definition of "sale" includes a transfer of title.
And so all I'm pointing out, if I could just go back to the definition -- I apologize for not answering--
Justice Samuel Alito: No, no, I understand.
I understand your position to be different from theirs.
Mr. Goldstein: --Oh, no--
Justice Samuel Alito: --Perhaps I should ask them about -- about their position.
Mr. Goldstein: --Sure.
Well, I apologize if I've created some kind of--
Justice Antonin Scalia: Excuse me.
I -- I don't agree that there's an agreement for transfer of title.
Where there's a consignment, you give the property to somebody, and he says I will sell it to somebody if somebody will buy it.
Mr. Goldstein: --Yes.
Justice Antonin Scalia: There is no agreement to transfer title.
Mr. Goldstein: There is--
Justice Antonin Scalia: It's purely a future contingency.
If someone will buy it, I will sell them -- sell it to that person on your account.
Mr. Goldstein: --Yes.
I believe -- I will allow you -- I apologize saying "I will allow you".
You can do, I know, whatever you want.
The government can explain it--
Justice Samuel Alito: No -- but anyway, go ahead.
Mr. Goldstein: --Yes.
It is -- the statute refers to a consignment for sale.
I believe they're defining a sale in that phrase.
But in all events, the debate over whether it includes or is limited to a transfer of title is not at issue in this case, because what the -- because all the statute requires is that there at the very least be some exchange of some part.
There's going to be an -- a binding agreement, a commitment, and that commitment will involve an exchange with the employer.
What happens in pharmaceutical detailing is that there can't be any commitment to issue a prescription at all--
Justice Ruth Bader Ginsburg: Because -- because the limitation on sale is they can't sell -- by Federal law, they can't sell.
And you're -- you are debating about exchange, sale.
What strikes one about this case is that these are workers -- they work autonomously.
They don't clock in and out.
They work outside the workplace.
After they're trained, they have minimal supervision.
Is there any other category of exempt workers that have that kind of autonomy and yet come under the wage and hours--
Mr. Goldstein: --I'm sorry.
So your premise is that they are exempt to begin with?
There -- I can tell you that there are a large number of employees who do work outside the workplace and are substantially more autonomous than are pharmaceutical detailers, who have to operate from very strict scripts.
There are -- it's literally--
Justice Ruth Bader Ginsburg: --For example, what are the -- that's what I wanted to know.
What are the categories of people that seem to be autonomous, not the type that clocks in and out?
Mr. Goldstein: --Sure.
Well, you can have emergency service workers that are working outside.
There are lots of people -- so, for example, you may well--
Justice Antonin Scalia: I don't -- I don't understand what that is.
Mr. Goldstein: --I apologize.
Justice Antonin Scalia: What's an emergency service worker?
Mr. Goldstein: A police officer or a fireman, an ambulance driver.
They are constantly outside the office.
You can also have lots of different kinds of promotion--
Justice Antonin Scalia: Excuse me.
They're not on duty all the time.
Aren't -- don't they have hours of duty?
Some of them make enormous overtime wages because they've put in hours beyond their regular hours of duty--
Mr. Goldstein: --Well, that -- my--
Justice Antonin Scalia: --These people have no hours of duty.
Mr. Goldstein: --That is not quite right, Justice Scalia.
They are expected -- the joint appendix explains -- to be in the doctors' offices between 8:30 and 5:00 p.m. They work additional time.
The fact that--
Chief Justice John G. Roberts: Doesn't that just -- I mean, that's when the doctors are there.
Mr. Goldstein: --That's -- but that is when they are supposed to be in the doctors' offices.
That's dictated by the company.
Justice Ruth Bader Ginsburg: What about -- what about the extras?
I mean, we're told that part of this job is to have a good relationship with the doctors.
It includes dinners.
It may be conventions.
Entertainment, maybe golf.
If -- if you're right, would the time on the golf course get time and a half?
Mr. Goldstein: Well, a couple things about that, Justice Ginsburg.
There actually are very strict restrictions.
That kind of activity is under the PhRMA Code, which is trying to interpret Federal law, is actually very heavily restricted.
But whatever it is that the employee is doing to further the employment relationship is going to be hours on duty.
It is really important I think that while it is true that a pharmaceutical detailer has many of the characteristics of an outside salesman, the one they don't have is selling.
And that is the line that Congress drew.
Justice Ruth Bader Ginsburg: You were -- you were giving examples, and we just stopped at--
Mr. Goldstein: --Sure.
Justice Ruth Bader Ginsburg: --emergency service worker.
But you said there are many examples--
Mr. Goldstein: Sure.
Justice Ruth Bader Ginsburg: --of people who are highly autonomous and still come under the hours regulation.
Mr. Goldstein: Sure.
Another example would be insurance adjusters.
There are people who are outside cleaning people that are not -- that don't have any--
Justice Anthony Kennedy: And these are all -- these are all within the Fair Labor Standards Act?
Mr. Goldstein: --Yes.
Yes, Justice Kennedy, they absolutely are.
Justice Anthony Kennedy: Are there any occupations or pursuits that are not covered by the Fair Labor Standards Act because -- on the rationale that they are out, that they're unsupervised, and so forth.
In other words, if you were in the case of the Respondent, would you -- would you have any close analogies to areas that are not -- that are exempt; in other words, that they wouldn't be salesmen, but there'd be some other classifications to fit them?
Mr. Goldstein: I would, but they would all be one of two things.
They would either fall within the administrative exemption, which is, Justice Ginsburg, what is Congress was talking about when it talked about people who have a lot of autonomy, and which is not true of detailers -- or some other exemption.
So, to give an example, certain outside buyers are exempt under the Fair Labor Standards Act.
A good -- that's a good example, because if you're an outside buyer of poultry, then you are exempt, but if you're an outside buyer of meat, you aren't.
It is one of a lot of different places -- there are 50-some exemptions from the Fair Labor Standards Act.
And Congress drew incredibly fine lines.
Justice Antonin Scalia: Congress can draw -- draw even silly lines.
Mr. Goldstein: Yes.
Justice Antonin Scalia: If Congress draws it, it's a line.
But the line you're suggesting here -- both your brief and the government's, as I recall, say, my goodness, if we find for the Respondent here, there'll be so much uncertainty in the future.
I'm not sure there isn't a lot of uncertainty if we -- if we find in your direction.
Now, let me give you an example.
One of my law clerks -- my law clerks supplement my sparse life experience.
One of my law clerks is familiar with the -- the framing business.
Now, salesmen of frames do not sell the frames at the time that they visit the -- the framing company or the framing store.
They get a commitment that in the future, that person will order from the framing company.
Now, is that a sale?
Mr. Goldstein: That is a sale, but the difference here is that there's neither a commitment -- remember, the commitment is illegal as a matter of law.
Justice Antonin Scalia: Well, but there is a commitment.
There is a commitment to -- what they are trying to get is a commitment to consider this drug if it's appropriate for prescription to patients in the future.
That's a commitment.
Mr. Goldstein: Justice Scalia, if that is the commitment, then all of promotion I think is going to be a sale, because every promoter who walks up to you on the street saying, will you try my product, will you go into the store, is trying to get you to say, I'll go in.
And that is much more of a direct commitment than you saying, I will consider it in an appropriate circumstance.
The commitment by a doctor is precatory at most.
They do not make any commitment in any instance that can be binding in any way that they will prescribe a drug for anyone.
And remember, there is the second -- the second distinction.
So that's one.
But the second is that, remember, there is a purchase in your hypothetical of framing, a purchase from the framing store.
But the second part of the Secretary's guidance is that when the doctor decides to issue a prescription they are not exchanging anything with the drug company.
There -- nothing is acquired from the drug company.
That is a very significant difference.
Justice Antonin Scalia: It's a peculiar line of commerce.
And -- and you are saying that what constitutes a sale of a salesman cannot take account of the fact that this is a weird line of commerce, where you are selling to people who cannot make a commitment.
Mr. Goldstein: Well, there are two things.
The first is the commitment, and they are not selling anything to the doctor.
Remember, just to frame this industry, the pharmaceutical company sells its products; it sells them to pharmaceutical wholesalers, which sell them to pharmacies -- pardon me -- which sell them to customers, which have a relationship with a doctor, who may or may not have met with a detailer.
There is a sale here in this industry, but it is to a pharmaceutical detailer, and that is a very significant difference.
The critical point as well for purposes of--
Justice Elena Kagan: Mr. Goldstein, doesn't--
Justice Ruth Bader Ginsburg: May I ask you -- may I ask you to follow up on other -- other categories of employee?
You gave me cleaning workers, emergency service workers.
Are any of those categories people who get paid commissions?
Mr. Goldstein: --Ah, those are not, but the example that I gave to Justice Kennedy would be, which is that there are outside buyers who do receive commissions.
And remember, of course, that there are outside salesmen who do not receive commissions but are nonetheless exempt.
Congress didn't write an exemption about commissions; it wrote them about whether it's an outside person who engages in sales.
And the other point I was trying to make is that -- and Justice Scalia echoed it to some extent -- and that is that the FLSA draws very fine lines.
If you work for a movie theater you are exempt, but not a playhouse.
If you work for a small newspaper but not a small magazine, you are exempt.
If you care for the elderly but not the young, you are exempt.
And what Congress said is that there has to be -- you are an outside salesman.
And that, it is true that this is a peculiar industry, but the peculiarity of it is that you don't make sales.
If I could reserve the remainder of my time.
Chief Justice John G. Roberts: Thank you, counsel.
ORAL ARGUMENT OF MALCOLM L. STEWART, FOR UNITED STATES, AS AMICUS CURIAE, SUPPORTING THE PETITIONERS
Mr. Stewart: Mr. Chief Justice, and may it please the Court: It's common ground in this case that in order to be an outside salesman an employee must make sales, and in theory there are two different ways in which Respondent could have attempted to establish that the PSRs in this case fit that criteria.
Justice Sonia Sotomayor: Could you answer Justice Alito's question?
Your brief to the Second Circuit and the Ninth Circuit suggested that a sale is a -- is a transaction, a transfer of some sort, or at least a promise to purchase.
But your brief here holds IT a much more rigid test, that there has to be a transfer of title.
And he pointed to the language of 3(x) -- 3(k), that says "consignment for sale", which doesn't have a transfer of the title.
So what is the government's position?
Mr. Stewart: Well, the DOL regulations have since 19 -- I believe it's since 1949, have said to make a sale within the meaning of 203(k), the term make -- 3(k) includes a transfer of title.
And in theory the verb "includes" could leave open the possibility that other things could be included as well.
We've never encountered a situation in which DOL has found a sale of goods without a transfer of title, but in direct answer to your question, Justice Alito, about--
Justice Antonin Scalia: Well, excuse me.
Consignment salesmen are -- are not exempt?
Mr. Stewart: --It would be -- with specific respect to consignments for sale, it would have been more precise to say that there has to be a transfer of possession in contemplation of a transfer of title.
Justice Samuel Alito: And what about salesmen who -- whose objective is to obtain a rental?
The lower courts have said that they qualify.
Does the government disagree with that?
Mr. Stewart: DOL believes that they qualify, but not as sales of goods.
And if the -- the Court could look at the appendix to the blue brief on page 4.
This is the pertinent regulation that refers to making sales or obtaining orders.
And it says:
"Section 541.500 requires that the employee be engaged in making sales within the meaning of section 3(k) of the Act or obtaining orders or contracts for services or for the use of facilities. "
and DOL's view is that a rental agreement would be a contract for services or for the use of facilities.
And the way--
Justice Antonin Scalia: Excuse me.
How can they put in number 2?
I -- I thought that 3(k) is 3(k).
Can -- can they supplement 3(k)?
Mr. Stewart: --They have supplemented 3(k) and they did that--
Justice Antonin Scalia: What's the authority to do that?
Mr. Stewart: --The -- this is discussed in the Stein report which was issued in 1940; and what had happened was that the question had arisen -- and the Stein report lays this out in a fair amount of detail -- the question had arisen whether individuals who negotiate for contracts to buy time on the radio or sell time -- sell advertising space in newspapers or sell -- negotiate contracts for a carriage of freight by rail or truck; the question arose whether they were outside salesmen within the meaning of the statute.
And the Stein report explained that the Wage and Hour Division had taken the position that they were not because it interpreted "sales" -- it appears to have interpreted "sales" to refer only to sales of goods, and people who were engaged in those sorts of businesses were not selling goods.
But the Stein report said: However, these people are commonly regarded as salesmen; the contracts they negotiate are treated as sales.
Justice Antonin Scalia: Well, that's wonderful.
Then if you can go beyond 3(k), I guess really the question before us is whether it's arbitrary or capricious for the agency not to extend their -- their -- their power to supplement 3(k) to this situation, which these people look like salesmen to me.
And so if they can do number 2 there, I don't know why -- why the agency couldn't say, oh, and by the way detailers are also included.
Mr. Stewart: Well--
Justice Antonin Scalia: And the issue would be whether it's unreasonable for them not to say that.
Mr. Stewart: --The agency has taken the position that, even though it has construed 3(k) to refer only to sales of goods, that sales of services or contracts for the use of facilities can be covered.
However, there is a big difference between the interaction between a detailer and a physician and the interaction between the -- the person who sells time on the radio.
Justice Antonin Scalia: Sure there is; sure there is.
But once you -- once you concede that it doesn't have to be within 3(k) and that it's within the power of the agency to grant the exemption anyway, then we -- we really have a different -- a different argument before us here.
Mr. Stewart: --Well, the -- the theory on which the Stein report proceeded was that, even though sales of time on the radio were not sales of goods, they were still customarily regarded as sales and they had the essential attributes of sales, namely an exchange of something valuable that the seller possessed in return for consideration from the buyer.
And you don't have any of that when the detailer deals with the -- the--
Justice Elena Kagan: Mr. Stewart, there is this other regulation which is I guess in the coverage section, 779.241, which says that if an employee performs any work that in a practical sense is an essential part of consummating the sale of the goods, he will be considered to be selling the goods.
So I guess this question is a two-part question.
Do you agree that that regulation does cover the -- these detailers?
And the second part is, if you do, you know, how does it work that we should understand sale one way for purposes of coverage and another way for purposes of exemption?
Mr. Stewart: --Well, the first thing I would say is that we wouldn't agree that this would cover detailers.
That is, if the relevant sales are, as we believe, GSK's sales to -- the transfer of drugs to wholesalers and pharmacies in return for consideration, the detailers don't play an essential role in the consummation of those sales.
They don't participate in those sales.
It's true that their mission is to engage in activities which set in motion a chain of events that will make those sales more likely to occur, but we wouldn't regard them as--
Justice Elena Kagan: But that seems a little bit blind to the way the industry actually works.
The way this industry actually works is the real work is done by the detailer getting the doctor to say, yeah, I'm going to start prescribing this where it's medically appropriate.
The actual sales from the company to the pharmacy just follows from however successful the detailer is.
Mr. Stewart: --But I think much the same thing could have been said about all the promotional workers that DOL has done with -- has dealt with in the past.
That is, the premise, the justification for a company to hire a promotional worker, is that the promotional activities will increase the overall sales of the company, will either directly or indirectly set in motion a chain of events that leads people to buy the product.
But DOL has historically regarded those activities as distinct from selling the product.
Justice Samuel Alito: Well, do those employees work on commissions?
Mr. Stewart: Some employees may work on commission.
Justice Samuel Alito: Promotional workers do work on commissions?
Mr. Stewart: --It's -- I don't think there is necessarily a uniform rule one way or the other.
The Stein report did say in 1940 that, although it was characteristic for outside salesmen to receive commissions, that was not the test, that that was a quirk of compensation.
The other thing I would say--
Justice Antonin Scalia: Didn't we have detailers in 1940?
Gee, that's a long time ago.
Did we have detailers in 1940?
That's almost a century ago.
Mr. Stewart: --There were detailers in that era, and--
Justice Stephen G. Breyer: That's my point, actually.
That's where I'm sort of bothered, just exactly what Justice Scalia said, that if you look through what I've seen so far by the materials, they're pretty evenly balanced, and there are tens of thousands of people who work in this industry, and there's a history of 75 years of nobody said anything.
So you would think -- and it isn't the only problem that has just been recognized in other industries, too.
If the agency is going to reverse, not reverse, but suddenly do something it hasn't done for years, the right way to do it is to have notice and comment, hearings, allow people to present their point of view, and then make some rules or determine what should happen.
Perhaps they'd say for the future let's do this, but not let's give people a windfall for the past.
Perhaps they'd say some and not others.
That's my instinctive reaction, not necessarily legal, but informed by administrative law.
But why shouldn't I try to get there?
Mr. Stewart: --I guess I'd say two things, one general and one specific to detailers.
The general thing is that DOL has consistently drawn a distinction between promotional work--
Justice Stephen G. Breyer: No, I've read those.
Mr. Stewart: --Okay.
Justice Stephen G. Breyer: I've read those, and I find them beautifully ambiguous.
I'll go back and read them again, and if they're absolutely clear, you win, fine, that's the end of it.
Justice Anthony Kennedy: And it's gone on for years, and you're -- instead of doing a regulation, amended regulation, as Justice Breyer indicates, you're filing amicus briefs quietly in different -- different courts.
It seems to me that's not nearly as fair or straightforward or as candid as -- as an agency ought to be.
Mr. Stewart: Well, with respect to where the industry expectation arose, we have only one data point or at least only one data point that has been identified in the briefs.
That is the National Federation of Independent Small Business Legal Center has filed an amicus brief on Respondent's side, and then -- they identify one DOL opinion letter, of which we were previously unaware, that dates from 1945.
And in the opinion letter.
The employer of the detailer asked for an opinion to the effect that its detailers were covered by the administrative exemption.
That employer didn't request a ruling that these were outside salesmen.
Justice Stephen G. Breyer: You're right about that, and so they're at fault, too.
But on the other hand, their employees might have been satisfied, and this is done to protect the employees.
So I'm asking, not saying, but what is the process here?
How do you know -- at what level was this agency decision made to suddenly go ahead with this?
Who made it?
What was the input?
How do you know they're on your side?
You do know; you're right.
But I mean, what's the process internally?
Mr. Stewart: --Internally, the -- the Solicitor's Office at the Department of Labor would consult with the Wage and Hour Division.
The Solicitor's name went on the briefs both that were filed in the Ninth Circuit and the brief -- I mean, the Ninth Circuit and also the Novartis brief in the Second Circuit.
And the Solicitor's name is on the government's brief in this Court.
The Solicitor is the third-highest-ranking individual within the Department of Labor.
Chief Justice John G. Roberts: Do you -- I'm sorry to interrupt your answer, but does your office review the amicus filings in the courts of appeals by the agencies?
Mr. Stewart: There was SG authorization for the amicus brief to be filed.
Chief Justice John G. Roberts: Is that the normal procedure?
Mr. Stewart: Yes.
Justice Antonin Scalia: But this is part of a regular program that the agency has now instituted, to run around the country and file amicus briefs; is that it?
Mr. Stewart: To clarify -- well, to clarify the agency's view of what the proper understanding of the law is.
And in terms of--
Justice Antonin Scalia: Yes, right, to get -- instead of doing rulemaking, instead of doing adjudication, we're going to file amicus briefs, and the court will accept our view in that amicus brief and, hey, presto, we have made law.
Mr. Stewart: --Well, maybe yes, maybe no--
Justice Antonin Scalia: That's extraordinary.
Mr. Stewart: --Well, in comparison to the alternative step of filing enforcement actions, it's both--
Justice Stephen G. Breyer: Well, did the Secretary of Labor herself or himself, depending on when it was, consider this matter?
Mr. Stewart: --I don't know whether the Secretary--
Justice Stephen G. Breyer: No, we don't.
So -- so the alternative is not enforcement actions, necessarily.
The alternative is for the agency to focus on the question and decide what it actually wants to do.
Mr. Stewart: --And the agency has regarded the application of its promotion sales regulations to the facts of this case as clear.
That is, if you asked GSK's highest level management why does it make sense to employ detailers, they wouldn't say because they get these commitments from physicians which are of value to the company.
The commitments or the quasi-commitments from physicians in and of themselves are of no value.
Justice Antonin Scalia: There are 90,000 of these people, and you have not -- the agency has not brought any action for these, lo, these many years.
90,000 of them.
And all of a sudden you say -- you come in and say: Oh, you have been in violation of the law in the past, and you're going to have to pay a lot of money for all these people who you didn't give overtime to in the past.
I just think that's extraordinary.
Mr. Stewart: Well, to the extent that there was an industry expectation that was based on anything DOL had said, it was based on, as far as we know, based on the 1945 opinion letter, which said not--
Chief Justice John G. Roberts: Well, but you -- you didn't even know about that.
Mr. Stewart: --Right.
Chief Justice John G. Roberts: And yet you expect the industry to know all about it, and yet it escaped your attention.
Mr. Stewart: Again, our argument is not that they should have known from the -- about the opinion letter.
Our argument is that the proper application of the promotion sales regulation to the facts of this case is pretty clear, and that if GSK's top-level management was asked to defend the use of detailers, they would say these people are important because if they persuade physicians to write more prescriptions and those are filled with GSK products, then pharmacies will reorder the drug and our wholesalers will reorder it from us.
Justice Sonia Sotomayor: Counsel, can I--
Justice Antonin Scalia: So you have been guilty of malfeasance for 70 years, right?
These 90,000 people out there who have been in violation of the law and the agency has done not a blessed thing?
Mr. Stewart: To return to the 1945 opinion letter, the opinion letter was based on the premise that the employees exercised discretion and independent judgment in the performance of their duties.
That's what -- what DOL said in concluding--
Justice Sonia Sotomayor: --Counsel, I thought that this whole system was set up on giving industries the opportunity to ask the government for an opinion letter, correct?
Mr. Stewart: --Right.
Justice Sonia Sotomayor: I saw in the briefing hundreds of opinion letters by hundreds of different industries.
Outside of this 1945 letter, did anybody else, any other pharmaceutical company, ever set out for the government or seek an opinion letter that you're aware of?
Mr. Stewart: I'm aware of only one instance.
I think this is not a matter of public record, but there was one request in, I believe, December of 2007, for an opinion to the effect that the detailers were covered by the outside salesman exemption.
DOL never responded one way or the other.
Justice Antonin Scalia: You don't suggest -- you're not arguing for a rule that if -- if an individual does not seek an opinion letter, he's guilty?
Mr. Stewart: No, I'm not arguing for that rule.
Justice Ruth Bader Ginsburg: Mr. Malcolm -- Mr. Stewart, is it -- is it true that that option is no longer available, that the Department of Labor no longer gives opinion letters?
Mr. Stewart: --It does -- it has phased out the opinion letter program and gives other forms of administrative guidance.
That is, DOL's rationale was that the opinion letter program had not been cost effective because often the bottom line -- may I -- often the bottom line answer to the question would turn on factual nuances of a particular employer and wouldn't provide much guidance to others.
And so it's tried to provide forms of guidance that are -- speak to the industry or a class of employees as a whole.
Chief Justice John G. Roberts: Thank you, Mr. Stewart.
ORAL ARGUMENT OF PAUL D. CLEMENT ON BEHALF OF THE RESPONDENT
Mr. Clement: Mr. Chief Justice, and may it please the Court:
Petitioners are two pharmaceutical sales representatives.
They were hired for a sales job.
They were given sales training.
They attend sales conferences.
They are assigned to sales territory, and they are evaluated and compensated as sales people.
Chief Justice John G. Roberts: And they don't do sales.
Justice Stephen G. Breyer: That--
Mr. Clement: With respect--
Chief Justice John G. Roberts: Your long list sort of stopped one step short.
They don't make sales.
Mr. Clement: --With respect, Mr. Chief Justice, we disagree.
We think they do make sales in the way that is relevant in this industry, and we do think they make sales in some sense, which is the practical construction the agency has always put on the sales requirement in the--
Justice Sonia Sotomayor: Can you give me what your regulation is going to be?
Mr. Clement: --What's that?
Justice Sonia Sotomayor: And would it exempt everybody from coverage?
Meaning, you seem to be saying if in some sense they make sales, it seems that every promotional person will be a salesman, that all industries have to do is put one or two forms of sales activities involved in the work of their worker, and they are exempt.
Give me your definition?
As long as it's in some sense, that covers everybody's exempt?
Mr. Clement: Yes, but Justice Sotomayor, if I could, there's two important qualifications that avoid the slippery slope concerns you're talking about.
One is it's, I think, common ground among everybody that you -- to qualify for any exemption or certainly all of these relevant exemptions here, it has to be your primary duty.
So you can't just slip in a little sales activity for something and get that person qualified.
The other thing--
Justice Sonia Sotomayor: Well, it seems like the sale here is not the primary duty.
The sale here is to schmooze the doctor and give him information.
That's what you said in one of your briefs, your company said in one of its briefs in a product liability litigation.
Mr. Clement: --With respect, Your Honor, the commitment is very important in this industry.
It is the objective of the sales call.
It's to get a commitment to prescribe when medically necessary.
Now, it is true that there is prologue to that, and there is efforts to promote before you get that particular sale.
But the regulations address that particularly, and they say, as long as you--
Justice Sonia Sotomayor: Primary duty is one of the limiting, and what was the second limiting principle?
Mr. Clement: --The second limiting principle is actually what I'm talking about now, which is if you look at 503, which are the regulations that draw the distinction between promotion and between being outside sales, they do not say that promotion is nonexempt activity.
What they say is it depends who does the promotion.
And as long as the outside salesperson does the promotion in conjunction with his or her own sales or solicitations, then that is exempt activity.
And what they were trying to--
Justice Ruth Bader Ginsburg: But it also says, it also says promotional work incidental to sales made by someone else.
Mr. Clement: --Is not covered.
Justice Ruth Bader Ginsburg: --is nonexempt.
Mr. Clement: You're right.
Justice Ruth Bader Ginsburg: And these, these sales -- I mean, eventually there is a sale to a hospital, to a pharmacy, and that sale is not made by the detailer.
Mr. Clement: But, Justice Ginsburg, I think it's important to recognize that the reason that 503 draws a distinction between promotional activity in conjunction with the salesperson's own sales or promotional activity with respect to somebody else's sales is they are concerned about the consideration where somebody else is going to follow up with the same customer to close the deal.
And if you look at the regulatory commentary, that's what they're concerned -- they don't want to sort of have double counting, where somebody promotes with a sales target and then somebody else follows up to close the sale.
Justice Elena Kagan: Well, that might be one thing that they are concerned about, but it may not be the only thing.
I mean, if you look at these regulations, it seems as though what they are trying to do is draw a distinction between people who actually consummate transactions, transactional people, and people who are pitchmen.
And what the Department of Labor here is saying is detailers are people who make pitches; they are not people who consummate the transactions.
Mr. Clement: Well, Justice Kagan, I really think if you look at the regulations as a whole and the commentary in the Stein Report and the Weiss Report, they are not worried about sorting out the pitchmen because they understand that a classic outside salesperson is a pitchman who then tries to get a commitment to buy or some other commitment from the sales target.
So what they are trying to do is really distinguishing not between pitchmen and sales people, but between what they refer to as missionary men or people who pave the way for somebody else to make the sale.
And I really think that's the focus of the 503 regulation.
And so the government's argument really boils down to the notion that there's nobody in this industry that makes enough of a commitment with the doctor for anybody to be involved in anything but promotion with the doctor.
And that seems--
Justice Elena Kagan: Why isn't that possible?
I mean, your brief seems to suggest that in every industry there needs to be some group of people who would be classified as outside salesmen, and that's not necessarily the case.
There may be some industries, and here it's a result of regulation, or it may be because of other business practices, where there just isn't anybody who's an outside salesman.
Mr. Clement: --Justice Kagan, it's theoretically possible, but it would be odd, especially in an industry that employs 90,000 people, in order to get a commitment to prescribe from the doctor.
And I think if you--
Justice Anthony Kennedy: What is -- what is this commitment?
Is the commitment in writing?
Mr. Clement: --The commitment is generally not in writing, Justice Kennedy.
Justice Anthony Kennedy: Would it be lawful to make it -- put it in writing?
Mr. Clement: I don't know that anything would turn on whether it was in writing or not because what--
Justice Anthony Kennedy: Would it be lawful to put it in writing?
Mr. Clement: --I -- I think the answer is yes.
It's important for the commitment not to be binding because of the nature of the doctor's role.
Nobody wants to go into a doctor's office, let alone these sales people, and say: Look, whoever is the next person who walks in the door, prescribe them the product.
Justice Anthony Kennedy: That sounds to me it's not a commitment, unless the doctor says: Well, I'll look at this, this is interesting; I'll go home and read your material, I'll think about it.
Is that -- is that a--
Mr. Clement: That's not the kind of commitment they are looking for, Justice Kennedy.
They are looking for a commitment that -- sometimes it's the next patient that presents the condition for which the medicine is medically appropriate, that they will prescribe.
And if you think just practically--
Justice Ruth Bader Ginsburg: But it's got to be non-binding.
Mr. Clement: --It has to be non-binding, I agree.
But I don't think that--
Justice Anthony Kennedy: --And that's why it's not in writing.
Mr. Clement: --Well, but you can have a non-binding commitment in writing.
You can have a binding commitment that's oral, as long as it's -- you know, I don't want to get into the Statute of Frauds here.
But it seems to me that the binding nature is not dispositive either.
You can have a situation -- look, if I agree as -- that I am going to buy something, I can often return it.
Sometimes there is a cooling-off period, things like that.
Justice Anthony Kennedy: Well, let me ask you this, and I'm not well versed in all -- in all of the specifics, but my understanding is that the Federal Government has expressed new concerns, has new regulations, new rules about these outside sales.
Does that mean that the nature of the work has changed in the last 5 or 10 years, so that the years we are talking about is not relevant?
Would you comment on that?
Mr. Clement: I would love to, Justice Kennedy.
I think, to the contrary, I think that -- I mean, the government actually ironically says that the 2004 rulemaking, which was the last time there was any rulemaking, didn't change anything substantively.
We think that is wrong.
We actually think there was an important substantive change to the 503(c) regulations and others which addressed the following problem, which is not that the basic role of the outside salesperson has changed, but the technology has changed in such a way that it would be silly to draw a distinction between whether the salesperson actually takes the order and writes it down or gets a form in triplicate, or rather gets a commitment to buy from the sales target who then actually enters the order on a computer on their own.
And that I think is the specific situation that the agency was confronted with.
And in 2004 they said: We don't want things to turn on who enters the order, whether it's the customer on their own computer or the outside salesperson.
Justice Elena Kagan: But, Mr. Clement, I thought that in 2004 there were two proposals, really, and one was the proposal that was changed and the other was the proposal to get rid of this promotional stuff and to allow people who promoted products to qualify as outside salesmen, and the agency specifically rejected that suggestion.
Mr. Clement: Absolutely, Justice Kagan, but there has always been an effort to try to get all promotional people treated as being exempt.
But that is different from what is being asked for here, which is the last person who makes a visit to the person who places the relevant order in the industry and gets the commitment from that person.
That, in contrast to general promotion, often directed at the world at large, has always been the hallmark of a sale in the Department's own flexible approach.
And I think that's really important.
Justice Ruth Bader Ginsburg: But that seems to be inconsistent with this, this opinion letter.
The request is put in by the pharmaceutical company and they want an exemption under administrative employees.
In the Department of Labor's response allowing that exemption, it says that these detailers, and they use the word "detailers", medical detailers, are engaged in a form of promotional or missionary work.
Mr. Clement: Well, Justice Ginsburg, I -- I want to say two things about that.
One is to say obviously that may depend a little bit on how the particular role was described.
If you are reading from the 1945 opinion letter, I mean, that may be somewhat different.
But I do think that what's important here is that promotional activity itself is not problematic.
Promotional activity is exempt as long as its in conjunction with the person's own sales or solicitations is the word of the regulation.
So I don't think that is dispositive.
Justice Ruth Bader Ginsburg: I think the letter goes on to say that these detailers are engaged in a form of promotion not having for its object the making of specific transactions.
Mr. Clement: Well, and again, Justice Ginsburg, we would take issue with that and say, no, there is an interest in getting a specific commitment.
It is commitment to prescribe.
It may be somewhat -- it is non-binding, and it may be somewhat forward-looking, but I don't think that distinguishes this industry from any industry.
Justice Ruth Bader Ginsburg: But as far as your years, it's suspect for two reasons.
One is we are told that in the early years, at least, before there were regulations restricting the sale of prescription drugs, that these detailers did two things.
They did have their informational function, but they also did direct sales to pharmaceutical companies, to hospitals.
So for at least 20 years of those 70 years these people were engaged in what the department would call sales.
So that's suspect.
And then when we have the commitment, the opinion letter that says: We have a category for these people; they are engaged in instruction, in information; they are not engaged in sales; but because they are so independent, we rank them as administrative -- in the particular case we rank them as administrative people.
So it's not as though there was a sudden about-face as you suggest.
We have a categorization as -- as administrative employees, but not sales employees, and we have a history of these detailers at one time actually selling.
Mr. Clement: --Well, Justice Ginsburg, let me say -- I mean, certainly as the regulatory environment has changed, the nature of how the sales are transacted in this industry have changed, but I think the focus is very much on the doctors appropriately because they're the ones that placed the order.
But I also want to be responsive to the administrative exemption.
Justice Antonin Scalia: You wouldn't -- you wouldn't mind being exempt as administrative, would you?
Mr. Clement: I wouldn't, Justice Scalia--
Justice Antonin Scalia: Yes.
Mr. Clement: --but I do want to--
Justice Antonin Scalia: But they've changed their -- their view.
Mr. Clement: --They've changed their view on that, too.
And I certainly don't want this Court to think that the industry somehow has the administrative exemption as an ace up their sleeve or in their back pocket.
And it's really the same exact issue, because, once again, the agency has changed their view.
And once again, their view is not based on anything that has to do with label--
Justice Ruth Bader Ginsburg: Did you claim -- did you claim exemption as administrative employee?
Mr. Clement: --We did, Your Honor, in the district court.
It's not before this Court because we got summary judgment in our favor on the outside sales exemption.
But I really would think it would be a -- a mistake for this Court to say--
Justice Ruth Bader Ginsburg: So that would -- then that would be still open if you lose on the outside sales?
Mr. Clement: --It would, Justice Ginsburg.
But you're just deferring the same inquiry, because the government's position once again is after 70 years of having the industry proceed on the assumption that these individuals were exempt, they now have changed their mind.
And, again, their view has everything to do with FDA regulation--
Justice Elena Kagan: Well, Mr. Clement--
Mr. Clement: --and nothing to do--
Justice Elena Kagan: --I'm sorry.
Mr. Clement: --and nothing to do with labor policy, because what they say is that now because of the government's own off-label prosecutions, these outside salespeople have to stick to a script and -- in order to avoid off-label liability.
And because they have to stick to the script, they are told they don't exercise sufficient discretion to come within the administrative exemption.
And the problem here is the Labor Department, instead of looking at this and making a rational judgment about labor policy and whether these individuals who make $93,000 on -- for the median should rationally be the kind of workers that are protected by the Fair Labor Standards Act, instead, they're looking at things that have everything to do with FDA regulation and nothing to do with labor policy.
Justice Elena Kagan: You've suggested--
Justice Stephen G. Breyer: --The--
Justice Elena Kagan: --I'm sorry.
Justice Stephen G. Breyer: --Are they paid commissions?
If they're -- if the salesman or the promotion agent, as the case may be, is successful in his territory in getting doctors to prescribe the drug, does he receive extra pay?
Mr. Clement: He receives incentive compensation.
Justice Stephen G. Breyer: What does that mean?
Does he -- I mean, an outside salesman -- in one document, it says is a person who often obtains a commission on his sales.
Mr. Clement: Right.
Justice Stephen G. Breyer: And now what I'm trying to figure out -- I might not have the right words to ask the question -- are these people, people who in some sense or other receive out -- commissions on their sales?
Mr. Clement: And the answer is -- for the Petitioners on this record, the answer is yes.
They're not the commissions that are a one-to-one correspondence, but what they do is they receive substantial incentive compensation, about 25 percent of the total, and it's based on the sales of the product in their sales territory.
So, if the--
Justice Sonia Sotomayor: How is that different from a bonus that an employee gets?
How is it any different than what most companies do in -- in giving a bonus at the end of the year?
Mr. Clement: --Certainly, based on the facts in this record, it -- at the time of this case, it's much more tied to the performance of the product in the sales territory.
And I don't think that's -- you know, it's not based on the company's overall performance--
Justice Sonia Sotomayor: Mr. Clement, you give me one definition of "outside salesmen", the one that you prefer for us to apply here.
The Department of Labor gives another, and the one they're giving according to them is a bright-line rule.
It's easy to apply.
You have to do some sort of transfer of title.
That's as -- their rule.
Tell me what the -- your argument is that -- why your rule has to win.
Meaning, aren't we supposed to give deference to the expertise of the agency, especially when Congress lets them define--
Mr. Clement: --Justice Sotomayor, two responses to that.
One is you can't defer to the Labor Department's preferred construction, because it's flatly inconsistent with the statute.
This idea that you have to have a transfer of title cannot be squared with 3(k); it cannot be squared, at least as I understand it, with some of the -- the own advice they've given, which is all you need is a commitment to buy.
That's what they've told people since 1949.
There's an example in that Weiss report from involving a jobber where you have a situation where somebody's treated as an outside salesperson even though they never have title over the product.
So they get the commitment to buy from the sales target, and then a jobber who works for a different employer is the one that transfers title.
That's at page 11 of the NFIB brief, if you want to look at it.
Justice Elena Kagan: Mr. Clement, I guess I'm not sure I understand what you just said.
If -- forget the transfer of title business, but if it's just -- we're requiring a transaction here.
And we're drawing a line between people who do transactions and people who just advertise or make pitches or whatever you want to do it.
That's perfectly consistent with the statute, isn't it?
I mean, you can argue about is it the only possible reading; you can even argue about whether it's the best possible reading.
But it's surely a -- a possible reading.
Mr. Clement: --It is a possible reading, Justice Kagan.
But it's not the one that the Labor Department has advanced in their amicus brief.
So you can't defer to that.
I mean, you can decide that it's the best reading of the statute if you want, but--
Justice Elena Kagan: I suppose that that's a question.
For them, I read their amicus briefs to sort of suggest two things.
Sometimes they just talk about transactions, and sometimes they talk about transfer of title.
Mr. Clement: --Well, and with respect, Justice Kagan, that's one of the many problems with deferring to amicus briefs.
Because when an agency gives guidance in an interpretative rule or something, there's one place, and they provide "the" answer.
Now, I don't know if the government wants you to defer to the -- defer to the argument on page 12 or the argument on page 20 or the argument on page 24.
Justice Elena Kagan: Well, I think that they would say that it doesn't make any difference, because they've never really seen a person who makes transactions without transferring title.
So I think that--
Mr. Clement: Well, with respect, they have -- no -- with respect, they have seen that person.
Justice Antonin Scalia: Consignment, for one, which is legitimate--
Mr. Clement: Well, consignment is in the statute.
But this jobber example is right out of the Weiss report in 1949, and the outside salesperson in that case never had title.
The title comes from the jobber who works for somebody else.
So the salesperson in that instance never had title, not even in the chain of distribution.
Yet they say that is a clear case where the person is an outside salesperson and exempt.
Justice Ruth Bader Ginsburg: Did -- did the pharmaceutical companies request -- ever in this period, request a ruling, a rulemaking on the status of these PSRs?
Mr. Clement: Well, I understand from the government that there was a request in 2007 and that the Labor--
Justice Ruth Bader Ginsburg: That was an opinion letter, they said.
I thought they said that was an opinion letter.
Mr. Clement: --It was a request for an opinion letter.
Justice Ruth Bader Ginsburg: Yes.
I asked if there was a request from the pharmaceutical companies for a rulemaking on the proper classification in this case.
Mr. Clement: --No, there wasn't, Justice Ginsburg, but I think that actually cuts in our favor, because in 2004, a lot of companies were coming in with things where they thought it was unclear, where they thought there was some doubt, and asking for clarification.
This was so well understood that the outside sales exemption, or perhaps the administrative exemption, covered the outside sales force of this industry--
Justice Anthony Kennedy: What's the case that I cite if this opinion is written the way you -- you propose, and the -- this Court says, well, this has been years, or maybe in 10 years if you take the new regulations as setting a new regime, and the Department has never made an objection, and therefore, it follows that the Department's interpretation is implausible or improper, and then I cite some case from our Court.
What -- how do I write this?
Mr. Clement: --I would -- I would -- I would ask you not to be bound by having to cite a case.
I would ask you to just use the following reasoning, though, which I think is 100 percent -- and there's plenty of cases you could cite as perhaps cf.
Justice Anthony Kennedy: Well, I'd like one.
Mr. Clement: Sure.
Let's start -- let's start with Fox and just the basic notion that in administrative law, if you're going to change your position, you have to acknowledge that you're making a change.
I think at a minimum here, if they're going to impose this kind of massive retroactive liability on this industry--
Justice Elena Kagan: --But, Mr. Clement, this isn't a change.
You've referred to it as a change in a lot of ways -- in a lot of times, but what we have here is an agency that, for some number of years, thought that this was not the most urgent problem on their plate.
Indeed, one would think this is a pretty peculiar Department of Labor if they thought that this was the most urgent problem on their plate.
So they didn't enforce it.
But now the question has come up, and they say we'll look to our regulations.
This falls on one side of the regulation.
Now, you've been given a gift for all these years is one way of looking at it, because -- because you were not their most urgent problem, and so they didn't enforce their own regulations against you.
Mr. Clement: --Justice Kagan, here's the thing.
We can quibble about whether or not there is a change in their position or whether they just didn't have a position before, but I think the important thing is they've imposed, by taking this position in an amicus brief and asking for deference to it, massive liability on this industry.
The PhRMA brief estimates it's billions of dollars.
Justice Ruth Bader Ginsburg: Why would you -- why must you look to an amicus brief?
Why not just look to the regulations that define -- the regulations that define "sale" and that define "promotion".
The 541.503 says promotion work incidental to a sale made by somebody else is not exempt.
Why do we get into the amicus brief when we have in these 541 regulations a definition of sales on the one hand, promotion on the other, and then this statement that promotion work incidental to sale made by somebody else is not exempt?
Why doesn't -- why isn't that the answer to this case?
Mr. Clement: --Here's the answer as to why that's not the answer, and then let me circle back and say why, if you are going to err on one side or the other, you shouldn't err on the side of imposing massive retroactive liability.
The reason that that is not a simple matter of deferring to that is because that same regulation earlier says that promotional work is exempt if it is in conjunction with the individual's own sales or solicitations.
Now, I happen to think it's pretty clear that these -- by getting this commitment, which is the functional equivalent of a commitment to buy, which is what the regulations and regulatory interpretations have always said is a sale in some sense, I think these are sales.
Justice Ruth Bader Ginsburg: Does the pharmaceutical company have a sales force?
I mean, who sells to the wholesalers, the pharmacies, and the hospitals?
Mr. Clement: --It's not this kind of outside sales force.
It's a much less sales-oriented transaction.
The PhRMA amicus brief, for example, gives the example of a company that has 2,000 outside sales reps and 10 people that handle the movement of transfer of product to the wholesalers and the distributors.
If you look at district court's opinion at the page 42a of the petition appendix, the district court addresses this issue and I think gets it exactly right, which is the reason there is not a sales effort focused on the wholesalers and distributors is because their job is to have on stock the kind of medicines that physicians are prescribing.
Justice Ruth Bader Ginsburg: But there are -- there are people who sell to them.
There may be only a few, but--
Mr. Clement: There is a handful of people, Justice Ginsburg, but that's -- I mean, there is nothing anomalous about that.
Most industries have some sales force that operates on the wholesale--
Justice Ruth Bader Ginsburg: --Are they exempt, too?
Mr. Clement: --What's that?
Justice Ruth Bader Ginsburg: The -- the actual sellers from the -- the people on the staff of the pharmaceutical company who sell to the wholesalers, pharmacies, and hospitals, are they exempt?
Mr. Clement: I don't believe so, Your Honor, at least not under the outside sales exemption, in part because they are not outside, in part because they are not really engaged in a sales effort.
It does them no good -- if they can convince some wholesaler or distributor that the GSK product is far superior to a competitor's product and it doesn't make any difference at all because as a result of that -- they need to have product that actual doctors are writing prescriptions for.
That's what drives sales in this industry.
There is nothing anomalous about that.
If you think about any industry, sales activity is always directed at the people who place orders.
In this industry, because of the learned intermediary doctrine, the person who places the order is the doctor, not the ultimate end user.
Chief Justice John G. Roberts: Is there -- let's say the doctor hears the spiel and the doctor says: Okay, yours is the first thing I will think of, you know, when I have a patient with this and this.
I mean, is that a sale?
Mr. Clement: We think it is, Your Honor, but if you have any doubt about that, certainly at the point that the doctor then, when he sees the next patient, writes the prescription, I think at that point I think there's a sale; because again, what the regulations and regulatory history looks for is a -- is a commitment to buy.
That's the relevant commitment to buy.
That's the order in this industry--
Chief Justice John G. Roberts: So what if the doctor, as I suspect a lot of doctors do, they listen to this guy, and they say: Okay, I'll think of -- you know, when it comes up, I'll think of your product.
And the next guy comes in from the other company and he says: Okay, when it comes up I'll think of your product.
Are those two sales or no sale?
Mr. Clement: --I think they are probably two sales, Your Honor.
But you know, it's the same thing -- imagine somebody who's, you know, just sitting in their house and they get an encyclopedia salesperson.
And they say, you know, I'll -- maybe I'll buy that.
That looks good, I'll buy it.
And they say, but you know, maybe the State law has a law that says you have got to wait 24 hours before you put the order in, in the computer.
Chief Justice John G. Roberts: But that's a firmer commitment when they say: I will buy it.
The physician is just saying: I will think of your product when it -- when the need comes up.
Mr. Clement: But -- well, if -- I mean, what I was suggesting is maybe you are talking about a State that has a 24-hour waiting rule or something like that.
So it's a commitment that, sure, I'm going to enter the order in 24 hours.
Well, maybe another encyclopedia salesmen comes in, in 12 hours and he gives another commitment.
One of the two people he is going to put the order in, and one of the two people will certainly have finally had a sale.
I think again--
Justice Elena Kagan: But don't you think that the way this works -- I mean, the way we should all hope it works is that the detailer comes in, the detailer provides information, the doctor says, that's very interesting, I want to think about it, I'm going to think about it.
Then the doctor reads some medical journals; then maybe the doctor goes to a convention and talks to other doctors about the product.
I mean, that's what you would hope that a doctor would do before a doctor decided, I'm going to start prescribing this medicine.
And the detail work is a part of that, but so are many things before the doctor actually decides to do something.
Mr. Clement: --Sure, Justice Kagan.
But you don't want to look at this like it's an isolated, one-time, you know, sort of interaction.
I mean, one of the things that -- that happens in this industry, like other sales industry, is there are multiple trips.
The detailer goes there maybe the first time and lays the ground work.
Then maybe the doctor reads some other information.
Then maybe on the final visit, after all that information is there, finally the detailer gets the commitment to prescribe to appropriate patients.
I think one way to think about the absurdity of making the difference turn on the prescription is to compare this salesperson to another salesperson of medical devices who goes in, but these are medical supplies that the doctor uses in the doctor's office.
Now, they're both hired for their sales experience, they both get sales training, they both have a sales territory.
They're sitting in the same doctor's waiting room, waiting for the same doctor; they have samples in their bags, and they both get a commitment from the doctor.
Now, what sense does it make as a matter of the FLSA and its labor policies to say one of those people is exempt and the other one is not exempt, because for perfectly sensible reasons, we say that one of those products is a prescription where the doctor writes the order and then with that order the end user, the ultimate end user, can make the purchase at the pharmacy, whereas the other one--
Justice Antonin Scalia: --Mr. Clement, I wanted to ask you about section 501 of the regulations, which -- which is on page 4 of the appendix in the blue brief, and was mentioned in the -- in the government's presentation.
"requires that the employee be engaged in, one, making sales within the meaning of 3(k); or, two, obtaining orders or contracts for services or for the use of facilities. "
What authorization is there for the agency to invent number two?
Mr. Clement: --Well, Justice Scalia, you heard the government's explanation and, as you suggest, if the government's explanation is right, then this shouldn't be a matter of just trying to limit things to -- to the 3(k) definition.
I think, even though -- at the 3(k) definition, though, if you look at that definition, it has every hallmark of being broad and functional and flexible.
I would want to make one very important point, though, about the ultimate question here, because ultimately the decision whether to go one way or another on this issue has remarkable significance for retroactive imposition of liability.
We all know that retroactive rulemaking is disfavored.
Well, think about the consequences here.
You have massive liability, between 4 and 6 years of effective time and a half, because of the way that the statute works.
It has time and a half plus liquidated damages.
You are talking about people who are very well paid, close to six figures.
So unlike the classic worker who you might think is covered by the FLSA, who is a relatively low hourly worker, the amounts of damages here are quite significant.
Of course, the effort to try to reconstruct these people's hours, given that they were told they were exempt and they were outside the office, trying to reconstruct how many overtime hours they actually worked is going to be a crapshoot at best.
So if you think about all of that, and then you think about, as Justice Breyer indicated, the other option, which is to--
Justice Stephen G. Breyer: Let's pursue this for a second.
Mr. Clement: --Sure.
Justice Stephen G. Breyer: Because I would like to go back to Justice Kennedy's question, and this is only me speaking.
I don't know how anybody else feels.
If this had come up in 1941, you wouldn't have had a chance.
I would have said look at the statute; it says the Secretary defines it.
You say, well, can you define it in a brief?
Yes, you have to be careful in briefs, but yes; and that's the end of the case.
It's not a question for judges, it's a question for administrators.
But now it's difficult for me because of the passage of 75 years.
And we can blame it in part on the industry or in part on the Secretary.
There is blame to go around.
So the question is, what do I do as a judge?
And partly my instinct is get somebody to decide this other than a lawyer in the Department of Labor, because this is a hard question.
And that's where we come to Justice Kennedy's question, which is he says all right, fine, let's write that and -- and what case do we cite?
And I don't agree with you, overturn Auer.
I think amicus briefs are often helpful, but use them with care.
And then I have the statute here, which talks about the Secretary doing the definition of "outside salesman", and I have lots of rules and regulations and reports, which are fairly ambiguous in my opinion.
So you tell me what to say.
Mr. Clement: I -- may I answer?
Chief Justice John G. Roberts: Certainly.
Mr. Clement: I would start by citing -- I know it's not always in fashion to cite lower court opinions, but I would start by citing Judge Posner's opinion in Yi, because the Seventh Circuit there, a, a very distinguished panel, Judge Posner, Judge Wood, and one other judge, the three of them considered this question -- Judge Sykes, I'm sorry; it slipped my mind, a very distinguished judge.
The -- it -- the point being that he said along these lines that the 70 years of history makes a significant difference.
And here's the thing.
Just like you expect an agency to confront a change of position, you would at least expect an agency to confront the retroactive consequences and in that sense address them and make sense of it.
And I would just simply say this, which is if you had a rulemaking you could bring in all of the affected parties, including the current sales representatives, who are not the ones bringing these lawsuits, whose jobs are going to be changed, and you could make a comprehensive view, as opposed to just getting one side of an ongoing litigation and then making a decision about an amicus brief.
Chief Justice John G. Roberts: Thank you, counsel.
Mr. Goldstein, 3 minutes.
REBUTTAL ARGUMENT OF THOMAS C. GOLDSTEIN ON BEHALF OF THE PETITIONERS
Mr. Goldstein: Thank you, Mr. Chief Justice.
Three quick points.
First, if you read the transcript, you will see that my friend says that the nature of this job has changed.
And that is an essential part of understanding this case.
And there is an entire amicus brief in addition to our submission on behalf of pharmaceutical representatives, which explains how very much the requirements of pharmaceutical detailers and the restrictions on them have changed dramatically over the last couple of decades in particular.
And that's why the continued references to years are wrong.
The other important part about the FLSA in particular is that there is a statute on this issue, and it says that an employer can request guidance from the agency; and if it doesn't do that, it is not -- it has no defense.
Its job is to ask for guidance.
And there are 50 different exemptions from the FLSA that cover hundreds of different categories of employees.
And if the rule you are going to announce -- because Mr. Clement's view is you shouldn't be bound by any precedent, if the rule you are going to now announce is that there has to be rulemaking with respect to all of those, it's going to be an administrative nightmare.
Two quick further points.
The Department of Labor's position is that there has to be an actual commitment, not a precatory commitment.
And Mr. Clement says, well, that's contrary to the definition of 3(k).
Please read the definition again, and if you find something in there, something that is not a commitment -- it can be an exchange; it can be a commitment that is even a consignment; it can be a traditional sale.
Every one of those things is commitment.
It is impossible to find in the definition of commitment a rule that says -- excuse me, in the definition of sale--
Justice Samuel Alito: Where do they say that that's their test?
Where does the Department of Labor say that's their test, it has to be a commitment.
I thought what they said in their brief was there has to be a transfer of title.
Mr. Goldstein: --There are two different parts to it.
One is that they -- as explained by Mr. Stewart, their view of transfer of title, but the Weiss Report says repeatedly that there has to be a commitment to buy.
Justice Antonin Scalia: Well, which is it?
I mean, you say, yes, yes, it's both.
Mr. Goldstein: --You have to agree--
Justice Antonin Scalia: Pick one.
Mr. Goldstein: --You have to--
Justice Antonin Scalia: Is it the transfer of title or a commitment?
Mr. Goldstein: --It is the agreement to transfer title.
There are two parts to it--
Justice Antonin Scalia: Ah.
Mr. Goldstein: --But there has to be the agreement, a firm agreement.
It's repeated in the 2004 preamble to the regulations as well.
Now, the last critical point I want to make is that Mr. Clement says there are commissions on sales in the sales territory.
And what he is not talking about is any commitment by a physician.
When you look at the transcript and he talks about sales in the sales territory, he is talking about the sales by the pharmacy.
That's where the sale occurs in this industry.
It's to the wholesaler and to the pharmacy and to the customer.
He is not talking about a sale in the sense of getting a commitment to have--
Justice Anthony Kennedy: But the district court here made a finding -- this is at 42(a) of -- of the -- the appendix for the Petitioners:
"Sales volume was directly and exclusively driven by the number of prescriptions written by physicians, and plaintiffs' job was to encourage such prescriptions. "
Mr. Goldstein: --That -- Mr. Justice Kennedy, I don't believe that you can fairly describe that as a finding of fact.
That is the judge -- his view of the summary judgment record.
Justice Antonin Scalia: It's a finding of logic, for Pete's sake.
These are prescriptions.
You can only get a prescription from a doctor.
Obviously, the number of prescriptions -- drugs sold depends upon the number of prescriptions given by doctors.
Mr. Goldstein: --Two -- two things about that.
First is that a detailer doesn't get a commitment to a prescription.
And then in addition, it's clear that there are numerous influences on what a doctor does.
There's all the advertising--
Justice Antonin Scalia: That's a different point.
Mr. Goldstein: --It is an important point.
It is a different point.
Justice Antonin Scalia: It's not the point you were making.
Mr. Goldstein: Justice Scalia, the point that I will make at bottom is that you have to have a firm commitment.
That's what the Department says.
And there's nothing in the definition in 3(k) that contradicts that.
Chief Justice John G. Roberts: Thank you, counsel, counsel.
The case is submitted.
Justice Samuel Alito: The second case is Christopher versus SmithKline Beecham Corporation, Number 11-204.
The Fair Labor Standards Act or FLSA requires employers to pay their employees time-and-half-wages for hours worked in excess of 40 per week.
Certain categories of employees, however, are exempt from that requirement, including those “employed in the capacity of outside salesman.”
The nature of the work done by outside salesman would make it very difficult if not entirely impractical to keep track of the hours they work.
They work outside the office most of the time.
They're often on the road and their pay often consists at least in part of commissions based on the number of sales they make.
The statute does not define the term outside salesman, but the Department of Labor has issued regulations that do so and this case concerns the proper interpretation of those regulations.
Respondent is a pharmaceutical company that manufactures and sells prescription drugs.
Under federal law prescription drugs may not be dispensed without a physician's prescription.
Consequently, pharmaceutical companies have long employed pharmaceutical sales representatives to provide information to physicians about their products and to obtain nonbinding commitments from physicians to prescribe those products in appropriate cases.
Petitioners were employed as pharmaceutical sales representatives for roughly four years.
During that time they earned an average annual salary of more than $70,000 and regularly worked more than 40 hours per week.
They brought this suit alleging that their employer's failure to pay them overtime wages violated the FLSA and they sought back pay and liquidated damages.
The District Court held that petitioners were not entitled to overtime wages under FLSA because they were employed in the capacity of outside salesman and the Ninth Circuit affirmed.
We now affirm the Ninth Circuit.
According to the Department of Labor -- according to the Department of Labor's interpretation of its regulations, pharmaceutical sales representatives do not qualify as outside salesman because they do not actually transfer title to any goods.
Although, we ordinarily defer to an agency's interpretation of its own regulations under our decision in Auer versus Robbins, there are strong reasons for not doing so in this case.
Petitioners invoked the Department's interpretation to impose potentially massive liability upon respondent for conduct that occurred well before the Department's interpretation was announced.
Until the Department filed an amicus brief in the similar case in 2009, for many years, it had never indicated that it thought the pharmaceutical industry's long standing practice of treating sales representatives as outside -- as exempt employees violated the FSLA.
To defer in this circumstance would undermine the principle that agencies should provide regulated parties with fair warning of the conduct the regulation prohibits or requires.
The Department's interpretation is also unpersuasive in its own right.
The principle regulation at issue in this case provides that an outside salesman is an employee whose primary duty is making sales and it incorporates by reference to statutory definition of a sale.
That definition provides that a sale includes any sale, exchange, contract to sell, consignment for sale, shipment for sale or other disposition.
The Department's interpretation that a sale requires a transfer of title is flatly inconsistent with this definition since a consignment for sale, one of the transactions specifically included in the definition of sale does not involve a transfer of title.
Applying traditional rules of interpretation we conclude that the catchall phrase “other disposition” in the statutory definition of sale is most reasonably interpreted as including those arrangements that are tantamount in a particular industry to a paradigmatic sale of a commodity.
Obtaining a nonbinding commitment from a physician to prescribe a certain product is tantamount to a sale in the pharmaceutical industry and so, petitioners were employed in the capacity of outside salesman.
The judgment of the Court of Appeals for the Ninth Circuit is affirmed.
Justice Breyer has filed a dissenting opinion in which Justices Ginsburg and Sotomayor and Kagan have joined.