Seasoned advocates, an engaged bench, and the hottest area of employment law made for an exciting oral argument this morning at the U.S. Supreme Court in the matter of Christopher v. SmithKline Beecham Corp. d/b/a GlaxoSmithKline. As readers of this blog are aware, the Christopher case involves the application of the FLSA’s outside sales exemption to pharmaceutical sales representatives (PSRs). It also – perhaps more significantly – addresses the appropriate degree to which courts should defer to statements made by the Department of Labor (DOL) in amicus briefs filed in pending litigation.
Clearly weighing on the minds of the Justices was the significant impact this decision would have on the 90,000 PSRs and their employers. With massive retroactive liability at stake in the event that DOL’s position is accepted by the Court, the Justices were extremely engaged, asking questions that tested both the substantive definition of “sale” under the FLSA, as well as the limits on DOL’s interpretive authority.
At the outset, all parties and the Justices themselves seemed in agreement that the PSR job has many of the typical attributes of a sales position. Rather than belabor that point, the Justices focused on the limits of the term “sale” and whether a binding commitment or transfer of title are required. The Justices asked the PSRs, represented by Tom Goldstein, founder of SCOTUSBlog, whether the PSRs’ position is consistent with language in Section 3(k) of the statute that defines “sale” to include “consignments for sale.” In addition to examining whether DOL is correct in requiring a sale to include a “transfer of title,” the Justices questioned what kind of commitment PSRs obtain, noting that any promise to prescribe that they receive from physicians is necessarily non-binding. Justice Scalia commented that application of the exemption in the pharmaceutical industry should take account of the peculiarities of that line of commerce.
SmithKlineBeecham’s counsel, former Solicitor General Paul Clement, noted the absurdity of DOL’s “transfer of title” rule: imagine two PSRs, sitting side by side in a physician’s office, making the same types of pitches to the same doctor, compensated on the same basis, and working for the same company. Under DOL’s bright-line rule, a PSR who sells drugs will not be exempt, but a PSR who sells medical devices would be exempt.
Several Justices’ questions indicated concerns about the fact the DOL’s position was set forth in a series of amicus briefs, rather than in regulations promulgated by notice-and-comment rulemaking. After 75 years in which DOL took no action challenging the exempt status of hundreds of thousands of PSRs, the Justices seemed reluctant – to varying degrees – to sign off on DOL’s newly-stated position. Justice Scalia questioned DOL’s authority to expand the definition of sales beyond that set forth in the statutory definition found in section 3(k) of the FLSA. Justice Kagan probed the issue of the existence of yet another (arguably inconsistent) regulatory definition of “sales” (found in Part 779 of 29 CFR). Justice Breyer stated that the “right way” to effect a regulatory change is through notice and comment rulemaking. And, Justice Kennedy suggested that filing amicus briefs as a way to effect regulatory change is not fair to the regulated community.
As Justice Scalia noted, it is part of DOL’s plan to “run around” the country and file amicus briefs, and the unfair surprise and associated sudden and unexpected retroactive liability resulting from that strategy was a theme throughout the argument. Rather than representing careful consideration by the policy-making officials at DOL, these briefs – and many other recent DOL positions – were advanced by lawyers in the Solicitor’s Office of DOL without input from all potentially affected parties. Obviously well short of notice-and-comment rulemaking, the Justices will now determine how much to defer to statements in DOL’s amicus briefs; with that decision may lie the fate of DOL’s amicus program.
Ultimately, the Court’s questions indicated that not only the Court, but the Justices themselves, are divided, with Justice Breyer calling the issue before them a “hard question.” A written decision is expected by the end of June. We will update readers when that opinion issues.