Novartis claims that the pharmaceutical sales representatives were exempt from overtime under the outside salesperson exemption and the administrative exemption. The sales representatives claimed that they were non-exempt employees under the FLSA overtime laws and as such were owed overtime back wages. 

The issue of whether or not pharmaceutical sales representatives are exempt from FLSA overtime is yet to be resolved. However, the U.S. Supreme Court recently heard oral arguments in Christopher v. SmithKline Beecham Corp. d/b/a GlaxoSmithKline, a case dealing with the same issues presented in the Novartis lawsuit.  The Court should issue its opinion later this year.

The arbitration agreement at issue in this case required employment-related disputes between 24 Hour Fitness and its employees to be “resolved...through final and binding arbitration.” Importantly, 24 Hour Fitness reserved the right to modify or terminate the arbitration agreement at any time. When a former employee sued 24 Hour Fitness for failure to properly pay overtime, 24 Hour Fitness tried to compel arbitration. However, a Texas district court found the arbitration agreement to be illusory. 

On appeal, the 5th Circuit looked to Texas state contract law to determine whether or not the arbitration agreement was valid. Under Texas law, if a party can change or terminate an arbitration agreement to avoid its promise to arbitrate, then the arbitration agreement is illusory. In this case, 24 Hour Fitness explicitly reserved the power to change or terminate the arbitration agreement at any time. Therefore, the court found that the arbitration agreement was illusory. 

The court distinguished this case from other similar cases. In re Halliburton, 80 S.W.3d 566 (Tex. 2002) addressed the validity of an arbitration clause similar to the one in Carey v. 24 Hour Fitness but the court noted one important difference. In Halliburton, the arbitration clause contained language that would prevent Halliburton from retroactively changing or terminating the arbitration clause.

Because 24 Hour Fitness’ arbitration clause did not contain language that would prevent a retroactive change or termination, the court found the arbitration clause was illusory. The 5th Circuit stated that “a situation where two parties enter into an agreement that ostensibly binds them both, but where one party can escape its obligations under the agreement by modifying it” is fundamentally unfair.  

Congress extended FLSA coverage to “domestic service” workers in 1974, amending the law to apply to employees performing services of a household nature in or about the private home of the person by whom they are employed. Domestic service workers were made subject to the FLSA even though they worked for a private household and not for a covered enterprise. Domestic service workers include, for example, employees employed as cooks, butlers, valets, maids, housekeepers, governesses, janitors, laundresses, caretakers, handymen, gardeners, and family chauffeurs. The 1974 Amendments also created an exemption from both the minimum wage and overtime pay requirements of the Act for casual babysitters and persons “employed in domestic service employment to provide companionship services for individuals who (because of age or infirmity) are unable to care for themselves.” Congress also created a more limited exemption from the overtime pay requirement for domestic service employees who reside in the household where they work.

The legislative history explains that the 1974 Amendments were intended to include all employees whose vocation was domestic service, but to exempt from coverage babysitters and companions who were not regular bread-winners or responsible for their families’ support. It was not intended to exclude trained personnel such as nurses, whether registered or practical, from the protections of the Act.

The home care industry has undergone a dramatic transformation since the Department published the implementing regulations in 1975. There has been a growing demand for long-term in-home care for persons of all ages, in part because of the rising cost of traditional institutional care, and because of the availability of funding assistance for in-home care under Medicare and Medicaid. The growing demand for long-term in- home care for persons is also partly due to the significant increase in our aging population.

In response to the growing demand for long-term in-home care, the home health care services industry has grown. According to the National Association of Home Care (NAHC) publication, Basic Statistics About Home Care (March 2000), data from the Department of Health and Human Services’ Health Care Financing Administration (HCFA) showed that the number of Medicare-certified home care agencies increased from 2,242 in 1975 to 7,747 in 1999. In the NAHC 2008 update, this number increased to 9,284 by the end of 2007. The number of for-profit agencies not associated with a hospital, rehabilitation facility, or skilled nursing facility, i.e., freestanding agencies, increased more than any other category of agency from 47 in 1975 to 4,919 in 2006. These for-profit agencies grew from 2 percent of total Medicare-certified agencies in 1975 to 68 percent by 2006, and now represent the greatest percentage of certified agencies. Public health agencies, which constituted over one-half of the certified agencies in 1975, now represent only 15 percent.

There has been a similar increase in the employment of home health aides and personal care aides in the private homes of individuals in need of assistance with basic daily living or health maintenance activities. Bureau of Labor Statistics’ (BLS) national occupational employment and wage estimates from the Occupational Employment Statistics (OES) survey show that the number of workers in these jobs tripled during the decade between 1988 and 1998, and by 1998 there were 430,440 workers employed as home health aides and 255,960 workers employed as personal care aides. The combined occupations of personal care and home health aides constitute a rapidly growing occupational group. BLS statistics demonstrate that between 1998 and 2008, this occupational group has more than doubled with home health aides increasing to 955,220 and personal care aides increasing to 630,740.

The growth in demand for in-home care and in the home health care services industry has not resulted in growth in earnings for workers providing in-home care. The earnings of employees in the home health aide and personal care aide categories remain among the lowest in the service industry. Studies have shown that the low income of direct care workers including home care workers continues to impede efforts to improve both jobs and care. The DOL believes that protecting domestic service workers under the Act is an important step in ensuring that the home health care industry attracts and retains qualified workers that the sector will need in the future. Moreover, the workers that are employed by home care staffing agencies are not the workers that Congress envisioned when it enacted the companionship exemption i.e., neighbors performing elder sitting, but are instead professional caregivers entitled to FLSA protection.

The most important change proposed by the DOL would limit the companionship exemption to companions employed only by the family or household using the services. Third party employers, such as in-home care staffing agencies, could not claim the exemption, even if the employee is jointly employed by the third party and the family or household. This rule would effectively overrule overrule the 2007 Supreme Court decsion Long Island Care at Home, Ltd. v. Coke, and would require 3rd party employers such as staffing agencies to pay companions and home health workers overtime under the FLSA when they work in excess of 40 hours per week.

Specifically, the Court has taken the case to decide the following issues:

1. Whether deference is owed to the Secretary of Labor's interpretation of the Fair Labor Standards Act's outside sales exemption and related regulations; and 
2. Whether the Fair Labor Standards Act's outside sales exemption applies to pharmaceutical sales representatives.

 Issue number 2 is going to get all of the attention from the media and most laypeople.  However, the first issue - what deference is due a federal agency by the Court - is what most lawyers will be following.  Agencies and the regulations they issue affect all of us in our daily lives.  Given the ever-increasing impotence of Congress to get anything done, agencies are likely to be given even more opportunities to issue regulations (which work like laws to you and me) about important areas of our business and personal lives.  Is this good or bad?  Opinions vary.

These regulations must then be interpreted to fit individual factual situations.  Arguing about what regulations mean in a particular context is a big part of what lawyers and judges do.  This case strikes right at the heart of that work.  The Court's decision will either strengthen the authority of an agency to interpret its own regulations or possibly require an agency to go through a more cumbersome rule-making procedure before it can change an interpretation. 

Court Documents:

• Supreme Court Docket
• 9th Circuit Opinion
• Petition for Certiorari 
• Respondent's Brief

Read More:

• SCOTUS will hear FLSA pharma sales rep case – LawMemo Employment Law Blog
• Supreme Court to hear case on scope of outside sales exemption -- Ohio Employer's Law Blog
• SCOTUS Grants Cert. in FLSA Case – Lawffice Space
• Supreme Court To Decide Whether Pharmaceutical Sales Representatives Meet The FLSA’s Outside Sales Exemption – Wage and Hour Litigation Blog
• Pharmaceutical Sales Representative Case Goes to Supreme Court – from Wage & Hour Insights

The Workers Defense Project, along with State Rep. Eddie Rodriguez, D-Austin, and county attorney David Escamilla, gathered Nov. 17 at the County Commissioners Court to participate in the national day of action by promoting the Texas Wage Theft Act of 2011, authored by Rodriguez and passed in the most recent legislative session.

The Austin Police Department, the county attorney’s office and the district attorney’s office began investigating cases of wage theft in 2003, resulting in thousands of dollars recovered from employers who had not paid their laborers.

Emily Timm, policy analyst with the Workers Defense Project, said loopholes within the 2003 policy were exploited by employers who would make small partial payments to remove their financial obligation to their laborers. The new law closes the gaps, allowing for more cohesive enforcement by APD, the county attorney and district attorney in prosecuting cases where laborers were either partially paid or not paid at all.

Wage theft is a systemic problem here in Austin and across the nation. In certain industries it is the way business is done.  If you believe you have been the victim of wage theft, contact Austin overtime lawyer Christopher McKinney.